This past Tuesday the Senate voted overwhelmingly in favor of a bill that restricts unfair credit card practices. The Credit Card Accountability, Responsibility and Disclosure Act passed by a 90-5 margin. The bill comes on the heels of similar legislation, known as the Credit Cardholders Bill of Rights, that was approved by the House on April 30th.
Here's a quick summary of how these bills effect you:
Teaser Rates – You know that old bait and switch tactic lenders use to get you to apply for their credit card? the one where you get an introductory rate of 0% and then 2 months later they increase the rate, now that you have a balance. Well, both bills require the lender to lock in your teaser rate for at least 6 months.
Advance notification: In the past your issuer could increase your credit card’s interest rate with only 15 days notice. Now both bills require that lenders give you 45 days notice before making significant interest rate, fee and finance charge hikes.
Retroactive rate hikes: Both bills ban hikes to interest rates on existing balances. If the rate on your credit card changes, the new rate will apply only to new purchases. However, the bill only applies if you make timely payments. If you fail to comply with a debt repayment workout plan or if you are more than 30 days (House bill) or 60 days (Senate bill) late on payments, they can hike the rate on all your balances. Furthermore, both bills prevent issuers from raising your interest rate during the first year of the card account.
Payment allocation: Before this legislation, banks could apply your payment to the balance with the lowest interest rate first, leaving your more costly balances accruing higher interest for the lender. Now, payments in excess of the minimum amount owed must first be applied to the balance with the highest interest rate first, and then to remaining balances in descending order.
Universal default: Both bills eliminate this practice that allows a lender to raise your rates if it learns that you were late on another card or loan.
Account closings: The House bill requires an lender to give you 30 days notice before they close your account.
Due dates: Credit card statements must be mailed 21 days before the bill is due, up from 14 days notice. Payments received by 5 p.m. on the due date are on time. Payments with due dates that fall on holidays or weekends must be accepted by the next business day.
Over-the-limit fees: Before, if you charged above your credit limit, the lender would approve the transaction and charge you with an “over-the-limit” fee. Consumers must opt in for over-the-limit approval—and the associated fees.
Penalty periods: If you are late your rate will go up. However, the Senate bill states that if you pay your bill on time for 6 months in a row, you can reclaim your lower rate.
Gift cards: The Senate bill states that gift cards can’t expire for at least five years.
Many of these provisions are scheduled to take effect July 2010.