Credit CARD Act of 2009 Kicks Off Today

Most of the much discussed and highly awaited Credit Card Accountability and Responsibility and Disclosure (CARD) Act of 2009 goes in effect today, 9 months since it was enacted.

80% of households in the US have credit cards, with only around half of them paying their balances in full every month.  Although the CARD Act mainly affects those who carry balances from month to month, credit card holders who pay their balances in full as well as prospective credit card holders may also notice some changes.  You will likely learn of some of them as you receive more information from your credit card company (as they are now required to provide), but to get you prepared for the upcoming changes and tell you what your credit card won’t, here are some highlights of what the Credit CARD Act will bring today:

Prospective card holders:

  • Interest rates on new credit cards cannot be changed during the first year.  And all promotional rates, including those for older credit cards, must last at least 6 months.
  • Credit card companies can only provide a credit card to individuals under 21 years of age if: (1) there is a cosigner to the application and (2) the underage applicant provides his/her financial information, including proof of ability to repay any future credit card charge.  Also, any increases in the credit card limit must be approved by the cosigner.

For those carrying balances:

  • Under normal circumstances, credit card companies can only increase fixed interest rates on a card after a certain time and if the cardh older was informed of the expiration date of that rate beforehand (i.e., consumers have to be told for how long a promotional period will run before the promotional period starts).  The higher interest rate can also only be applied to purchases made after that new interest rate went in effect.  Note that this does not apply to variable interest rates, which must be pegged to a public index but can fluctuate up and down.
  • However, if a card holder fails to make at least the minimum payment within 60 days after the due date, the credit card company may increase the interest rate.  For that, it must inform the card holder, and bring the interest rate back down to the original rate again if the card holder then makes on-time payments for 6 months straight.
  • If a credit card company uses measurements of certain risk factors (e.g., missed payments and market conditions) to assess whether to increase an individual’s interest rate, it must also use those same measurements to decide whether to decrease the interest rate.  Credit card companies are required to review these factors and reassess interest rates at least every 6 months.
  • Any payments above the minimum payment will be applied first to the portions of the balance that carry the highest interest rate.

For all credit card holders:

  • A due date runs until 11:59 PM.  Any payment that comes in by that time on a regular work day shall not be considered late.  If the due date is a weekend or holiday, or any other day in which the credit card company does not receive mail, a payment that gets in the next business day cannot be considered late.
  • The time between the end of the billing cycle and the payment due date has to be at least 21 days.

This Credit CARD Act seeks to protect consumers from some of the traps into which they fell as the crisis took its toll and interest rates and defaults skyrocketed.  But only time will tell whether these changes will help consumers enough, or if, as some fear, credit card companies will find other ways to impose fees and make money.  Let us know what you think of these changes in the comments section – Are you finding your statements’ new layout helpful?  Is your credit card company really being more communicative? How do you feel about younger persons not having access to credit cards without a cosigner?

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