The advent of stronger consumer rights in the credit-card industry begins in August when the first of numerous provisions in federal law kick in.
The law signed by President Barack Obama — the Credit Card Accountability Responsibility and Disclosure Act of 2009, or Credit CARD Act — is designed to provide consumers with access to credit on terms that are fair and more easily understood.
It bans abusive credit-card practices, enhances disclosures to cardholders and protects underage consumers.
It also protects consumers by barring unreasonable interest-rate increases and fees, and requires monthly disclosures of how much interest you’ve paid to date.
Yet credit experts say there’s no greater time for vigilance. Continue reading any changes to your cardholder agreement until the effective dates kick in. That’s because anything the card issuers do now won’t violate the new law, so any efforts to gather up funds to offset expected losses are likely to start appearing.
Experts say credit terms are likely to become less friendly, so consumers must ensure that their credit scores improve or, if already good, don’t falter.
“It’s the perfect storm, and anyone with a balance has a big, red target on their back,” said Curtis Arnold, founder of .
Those who pay off balances aren’t much better off.
“They’re likely to be changing the rules, saying your points aren’t worth what you thought,” said Odysseas Papadimitriou, founder of . “Grab up your points now; otherwise, that trip to Greece is suddenly a trip to the other side of town.”
David Migoya: 303-954-1506 or dmigoya@denverpost.com
Comparing the industry practices
THEN
One hundred percent of cards allowed the issuer to apply payments to balances with the lowest interest rates first, maximizing interest charges.
Ninety-three percent of cards allowed the issuer to raise any interest rate at any time.
Eighty-seven percent of cards allowed the issuer to impose penalty interest-rate increases for the most minor infraction, such as a payment arriving one day late, and they were retroactive on all balances.
Ninety-two percent of card issuers applied penalty interest rates indefinitely.
Ninety-two percent of cards charged a fee, $39 on average, for exceeding the credit limit.
One hundred percent of card issuers could increase their interest rate if the holder was late paying another card.
NOW
Payments must be applied first to balances with the highest interest rate.
Rate increases can happen only with a 45-day notice on existing cards. The rate for an introductory offer cannot change within the time frame specified in the offer.
A payment must be late for 60 days before penalty interest can be applied, and only on new purchases.
If six months of successive payments are made on time, the rate must revert to the percentage prior to the increase.
Cardholders must opt-in for over-limit access, and the fee must be disclosed upfront.
Rate increases may occur only on cards with a late payment greater than 60 days.
Key dates to remember
Aug. 20
• Forty-five-day notice requirement for rate increases and other significant changes goes into effect.
• Twenty-one-day statement mailing before due date requirement begins, preventing late charges from accruing without lead time.
Nov. 22
Federal Reserve Board to issue guidelines on:
• Establishment of a toll-free number for credit counseling.
• Report to Congress on financial- literacy programs.
Feb. 16
• Rules on stored-value cards such as prepaid cards must be issued.
Feb. 22
• FTC study due on emergency PIN technology to alert police via ATM.
What card you should carry if …
You pay your balance each month: Start shopping for the lowest rate with cash-back rewards. Play one offer off the other. Redeem points now.
You carry a balance monthly: The best rate is your best bet, but avoid cards with rewards programs.
You have excellent credit: You’ll likely be bombarded with the latest offers. Eye them carefully, and shred those you’d rather not bother with.
You have fair credit: You’re likely to see a membership fee, so shop for the card with the lowest or with a waiver provision.
You have bad credit or no credit: Some say secured credit cards are the next wave, so start saving up and get one. It’s great for students who will need to prove they have the ability to pay. Others say to get a regular card now, before they go away.
David Migoya, The Denver Post
