The Credit Card Act of 2009, signed by President Obama, goes into effect in three stages:
- Stage One: Became effective August 20th, 2009.
- Stage Two: Effective February 22nd, 2010
- Stage Three: Effective July 1st, 2010
Most of these changes will be extremely positive for consumers, drastically improving transparency of the rules, providing more notice for consumers, curtailing deceptive practices, and capping many types of rate increases and penalties. However, the credit card companies aren't taking it all lying down, and have some plans of their own to counteract the loss of revenue that the Credit Card Act will bring.
Here's our list, by stage, of what the Credit Card Act will do for you...and how the Credit Card Companies plan to fight back:
Stage 1 - August 20th, 2009
- Credit card companies will be compelled to mail your bill at least 21 days before payment is due, much improved over the current 14 days prior to the due date. How they'll fight back: The new rules also prohibit questionable practices like due dates that occur on weekends or holidays when payments aren’t accepted, but that rules doesn't go into effect until Stage 2 in February 2010.
- Credit card companies will now have to provide written notice to consumers 45 days before they increase an the interest rate on a credit card account or otherwise makes a notable change to the terms of your credit card account. Huge improvement from the current 15-day advance written notice that is required. How they'll fight back: The notice isn't equired if you have an introductory rate that expired, if your card is a variable interest rate card, or if you were paying a reduced rate under a hardship plan and failed to make your payments according to that plan.
- They must also inform consumers, in the same notice, about their right to cancel the account before the increase or change goes into effect. If a consumer does so, the creditor is cannot apply the increase or change. You would be able to cancel the account and pay it off under the original terms. How they'll fight back: They can increase your minimum payment, as much as 100%.
Stage 2 - Feb 22nd, 2010
- Account terms and cardholder agreements will be required to be posted on the Internet.
- Due dates that fall on a weekend or holiday effectively get extended to the next business day. Also, payments received by 5 p.m. must be accepted the same day.
- Double-cycle billing, a shady process where credit card companies use the previous month’s balance to calculate interest charges for the current month, is forbidden.
- Credit card companies won't be allowed to increase interest rates on existing balances unless the borrower is at least 60 days late on the account. This eliminates the current policy of retroactive rate increases.
- They will also have to provide clear disclosure of the "small print" before a customer opens an account. And, If the account has a promotional interest rate period, the promotional interest rate must last for at least six months.
- Also, they are restricted from raising interest rates on new credit card accounts during the first year the account is opened. How they'll fight back: This rule doesn't apply if the customer is 60 days late on a payment.
- No more over-the-limit fees unless they obtain the customer's consent to accept and process over-limit transactions. If they do have consent, they will not be able to charge more than one over-the-limit fee for each billing cycle. Better still, they will not be able to charge an over-limit fee if interest charges and other fees are the reason for the account being over the limit. So, if you didn't make any purchases, no fees.
- Credit card companies won't be able to charge fees for accepting payments by mail or phone,unless the payment is processed through an expedited service.
- Strong controls will be put in place to discourage giving credit cards to people under the age of 21 without an “of-age” co-signer. This should slow down their current lucrative practice around "college credit cards". Thousands of kids end up in serious debt because they didn't fully understand the dangers of overstepping their credit card use.
- Credit card issuersmust apply payments that are above the "minimum amount due" to the highest interest balance first. Today, they will apply it the lowest interest balance...like the portion of your balance that's associated with an introductary interest rate or balance transfer.
- Credit cards designed for those with rough credit histories will now have limits on fees. These fees, with the exception of late fees, over-the-limit fees, or bounced check charges, cannot exceed 25 percent of the total maximum credit limit.
- Credit card companies will have to include a disclosure that explains how long it will take to pay off the existing balance and the total cost in interest fees if the customers only pays the minimum amount due each month.
- How they'll fight back: The biggest weapon here is that variable rate cards are exempt from many of the rules around increasing rates, as they are tied to a rate that changes in the credit card companies favor. Expect to see very, very, few fixed rate cards. In fact, it's already started...most of the new cards being offered are now varible rate cards that let the credit card companies skirt rules about raising rates. You'll also likely see more fees disclosed up front, and enforced every time with little or no room for negotiation.
Stage 3: July 1st, 2010
- If a customer falls behind by 60 days or more, and their interest rate is raised as a penalty, the credit card company will have to go back to the original interest rate after the customer goes six months without a late payment.
- New rules will go into place that limit the fees on gift cards. All gift cards must be valid for at least five years. Fees for inactivity on gift cards will no longer be allowed.