Remember way back last spring when Congress changed the rules that credit card companies must follow? Most of those changes take effect today. If you haven’t already received a disclosure about these changes from your credit card company, then you probably will. But I thought it might be helpful to go through a few highlights.
These highlights are included with the information contained in the Federal Reserve’s new credit card education web site. Since there are so many changes, I’ll only summarize the most significant ones. So if you want additional detail check out that site.
Interest Rates And Fees
A huge portion of the changes affect interest rates and fees.
45 Days Notice
Credit card companies must give you 45 days notice if they change your interest rates, most fees or terms. At that time they will give you an opportunity to opt out, if you don’t like those changes. That means the account will be closed, and you must pay off your balance over time. The company is allowed to change your minimum payment at that time, but repayment should follow the same terms for interest rates and fees.
Bear in mind that not all interest rate changes require notice — only term-altering changes. For example, if you’ve already agreed to any rate changes (like a variable rate or an expiring introductory rate), then no additional notice is required.
No “Arbitrary” Rate Increases In First Year
So long as you pay your card responsibly, the credit card company may only change your interest rate during your first year if you have already consented to it doing so. Again this would include agreements to a variable rate, or an expiring introductory offer. However, if you are 60-days delinquent, then it can still raise your rate.
Treatment Of Balances
There are some pretty nice changes for consumers about how interest rates and payments will be applied to balances. First, if the company increases your interest rate, then it will apply only to new purchases. Now, as you use the card more, minimum payments will still pay off the balances with the lower rate first (as before). But if you pay more than the minimum, then those payments must be applied to the balance with the highest interest rate. This should help consumers to more easily pay off their cards.
Over-Limit Fees
In the past, credit card companies loved it if you went over your credit card limit — they would often allow you to do so, but not before forcing you to pay a lofty fee for that “flexibility” each time. Now, you’ll have to opt-in to incurring that fee. Of course, that means that if you haven’t opted-in, then your purchase will be denied if it exceeds your limit. But it can also save you from paying that fee, if you would prefer not to. And if you do opt-in, then they can only charge you that fee once per cycle, not each time you go over the limit like they used to.
Non-Penalty Fee Caps
The legislation also puts a non-penalty fee cap on new credit cards at 25% of the credit limit. That means, if you have a $1,000 credit limit, then you can’t incur more than $250 in fees for the first year. But if fees are related to penalties for things like delinquency or default, then there are no limits.
Payment
Some changes also focus on how consumers pay off their cards:
Statement Changes
Credit card companies will be required to include additional information on statements about payoff. In particular, they will have to tell consumers how long it will take to pay off the balance if only making the minimum payment. Companies must also tell them how high a payment they would need if they wanted to pay off the balance in just three years.
Payment Dates
The credit card company must make your due date at least 21 days after when it mailed (or when you received) your statement. Your due date will also be the same date each month (ex: the 10th). If that date falls on a weekend or holiday, then the payment is due on the soonest business day thereafter. The new rules dictate that cut-off time for payments cannot be earlier than 5pm.
Other Miscellaneous Changes
No Two-Cycle Billing
Companies are now prohibited from charging customers interest on their balance more than once per billing cycle.
Protection For Young Consumers
If you’re under 21, you now must prove that you can afford your credit card, or you will require a cosigner when opening a new account. Presumably that means you will need to have income or savings. And if you are under 21 and have a cosigner, then he or she must agree in writing to any credit limit increase.
With all these changes, it’s important to remember that they really only protect responsible consumers. If you fail to pay your bill on time, then the credit card company can still generally penalize you as much as it likes. In order for the companies to continue making healthy profits, all consumers have probably already seen their interest rates and/or fees increase over the past year. So that’s all the more reason to make sure you use your card prudently — these protections do not come without cost.
