On May 22nd, the Credit Card Accountability, Responsibility and Disclosure, or Credit CARD, Act of 2009 was signed into law. The legislation will improve consumer disclosures and end some flagrant practices in the credit card industry but stops short of capping interest rates and fees. Most of the provisions go into effect in February & August 2010.

First, let’s summarize some of the key changes that will be enacted by the law:

1. Issuers can’t raise rates on an existing balance unless you’re late by 60 days or more. In addition, rates can’t be raised in the first year after issuance, and promotional rates must last at least six months.

2. Consumers get 45 days’ notice before any key contract changes take effect, including rate increases. (Note: This provision doesn’t apply to credit limit changes.)
3. Consumers ages 18 to 21 who don’t have adequate income or a co-signor, won’t get approved for credit cards.

4. The new law bans double-cycle billing, the practice of basing finance charges on the current and previous balance. Under this method, the issuer could charge interest on debt already paid off the previous month.

5. The Credit CARD Act requires above-the-minimum payments to be applied first to the credit card balance with the highest interest rate.

6. Card companies must send statements 21 days before a payment is due; current law requires a mere 14 days’ notice.

While these changes are intended to protect many consumers, you may actually see some negative consequences. The fact of the matter is that these new laws will equate to large losses for most credit card issuers. To make up that shortfall, issuers can, and likely will, make some changes that are not addressed by the legislation. For instance, many experts predict issuers may charge annual fees, increase interest rates and other fees, lower credit limits, scale back rewards programs and reduce grace periods.

Forecasts aside, how credit card companies use the loopholes in the new law remains to be seen. For now, try to keep statement balances low, spend your rewards points, and be sure to watch your mail for change-in-terms notices.

[back to articles]
[back to newsletter archives]