New credit-card laws went into effect Monday, which will offer consumers new protections when they use their plastic.
Just two of the practices targeted – retroactive rate increases and so-called “hair-trigger” penalty interest rates – cost US consumers a minimum of $10 billion per year, according to a recent study by The Pew Charitable Trusts.
While it doesn't address all the concerns of consumer-credit advocates,the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act that President Obama signed into law last May of last year, does give consumers added protections.
The first phase of the legislation, which took effect last August, allowed cardholders to decline significant changes in terms to their credit-card agreements. The third and final phase, which takes this coming August, will be Federal Reserve rules on “reasonable and proportional” penalty fees and charges.
Most of the major reforms of the CARD Act, however, took effect Monday.
Here's a look at the key changes:
1. The end of confusing billing practices
Credit-card payments will be due at the same time each month, with notification of the bill made at least 21 days in advance of its due date. Payments will be applied to highest interest-rate balances first so that customers can pay off their balances faster and more cheaply. Finally, credit-card companies will be obligated to use “plain language in plain sight” on all materials related to the account and periodically display on statements how long it would take consumers to pay off their existing balance and interest charges if they paid only the minimum due.
2. Interest-rate reform
Nearly all interest-rate increases on outstanding balances will be prohibited and card companies must notify the consumer 45 days in advance of an interest-rate increase. Additionally, there cannot be any interest rate increases for the first year any account is open.
3. Opting-in for overdraft and overlimit protections
Customers will now have to opt-in to an overdraft program instead of being automatically enrolled. This means that if cardholders try to make a purchase that exceeds their limit or overdraws a debit account, their card will simply be declined. Under the old rules, the transaction could go through and the consumer would be fined.
4. Protections for young consumers
Credit-card companies face greater restrictions on marketing cards to college students. More generally, those under 21 will have to prove that they have the means to pay off their card limits or have a cosigner before they can be granted a card.