Loosening the noose
POSTED: Monday, February 22, 2010
I love the smell of reform in the morning. Smells like ... plastic?
Yep, reform is in the air today, but I'm not talking health care. Thanks to a law President Barack Obama signed last year, some significant changes in credit card regulations kick in today.
The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 puts new rules on rate increases and consumer payment handling, and improves disclosures on the terms of an account.
It's all about accountability and transparency, says Dwight Kealoha, chief executive officer of Hawaii's Better Business Bureau.
“;It encourages fair consumer payment handling and protects them from unreasonable fees, interest rates and other unwanted charges,”; he says.
Much of the changes will remove the element of surprise from that tiny fine print—all those terms and conditions that almost 75 percent of cardholders (including yours truly) admit to not reading.
“;People always seem to be in a rush,”; Kealoha says. “;We sort of glance over these things, but this time you really do need to read it.”;
CHANGES IN CREDIT CARD REGULATIONS EFFECTIVE TODAY
Here are some of the big alterations with the CARD Act of 2009: » More time to make monthly payments: Payments will now be due at least 21 days after bills are mailed or delivered.
» Limited interest rate increases: For existing balances, increases will be allowed only under limited conditions, such as when a promotional rate ends, when there is a variable rate or after late payments. Interest rates on new transactions can increase only after the first year. Forty-five days' notification must be given for significant changes in terms on existing accounts.
» Limited universal default: Universal default is when a card issuer raises interest rates based on your payment records with other, unrelated issuers. That practice will end for existing credit card balances. Universal default on future balances can be used if issuers give at least 45 days' advance notice.
» Opting out: Cardholders now have the right to reject certain significant changes in terms. Opting out means closing accounts and paying off the balance under the old terms. Cardholders will have at least five years to pay the balance.
» Limited credit to young adults: Anyone under age 21 is banned from getting a credit card unless there is an adult co-signer or there is proof that there is enough income to repay debt.
|
One of the biggest changes in the law is that interest rate increase on existing balances would be allowed only under limited conditions, like when a promotional rate ends or if the cardholder makes a late payment.
Card issuers must now provide 45 days' advance notice of changes. Unless disclosed upfront, promotional rates must apply for at least six months, and cardholders cannot have their rate increased in the first year.
Companies can only increase interest rates on existing balances if the borrower is more than 60 days delinquent or the increase is stated in the contract.
“;It'll put the relationship between the business and the consumer on a much more even keel,”; he says.
The law also gets rid of so-called late-fee traps. Card issuers now have due dates 21 days after bills are mailed. This was in response to complaints about due dates that change without notice or are moved up, increasing the likelihood of late fees.
“;That has always been a point of contention,”; Kealoha said.
Kealoha advises cardholders to read as much as they can about the new law. “;It's not as easy as reading one article.”;
Tell me about it. This column is far from comprehensive, and you should find out not only what the law does, but also what it doesn't do.
Card issuers can still raise interest rates on future card purchases, and there is no cap on how high they can go.
The new law doesn't cover business or corporate credit cards. That means small-business owners might have to use personal accounts if they want to enjoy the new protections.
None of this absolves you from paying your balance. But read the fine print, stay informed, and you can avoid the horror of credit card debt.
”;Here's the Deal”; helps consumers stretch dollars in these tough economic times. It runs every other Monday. E-mail Gene Park at .(JavaScript must be enabled to view this email address).
