New Credit Card Laws for 2010 - A Consumer's Guide

by Brandon Cornett, creator of the Home Buying Institute

Do you have questions about the new credit card laws of 2009 - 2010? If so, you've come to the right place. This guide gives you all of the information you need to know -- in plain English.

If you've been watching the news over the last few months, you've probably heard about the new credit card laws that have been established. These laws have made significant changes to the way the credit card industry operates. But they've also created a lot of confusion among consumers, and that's where this guide comes into the picture.

We have created this consumer's guide to credit card laws to help you understand your rights as a cardholder. Below, we have "translated" these new regulations into plain English for you, so you can understand how they affect consumers like you.

The Credit CARD Act, Defined

The full name of this law is the Credit Card Accountability, Responsibility and Disclosure Act of 2009. It is more commonly referred to as the Credit CARD Act. The U.S. Congress passed this act in May of 2009, and it was signed into law by President Obama shortly thereafter. It's an amendment to the Truth in Lending Act, which was created back in 1968.

This law is designed to protect consumers from the abusive practices of the credit card industry. These regulations will prevent a variety of abusive penalties, fees, interest rate changes, and other money-making "tricks" that have been used for years. In short, the new laws prevent card issuers from taking advantage of consumers.

Key Dates and Milestones

There are several dates of importance you should know about. We will discuss the three phases of implementation in more detail, as we continue through this lesson.

• May 2009 -- The Credit CARD Act was passed into law.
• August 20, 2009 -- The first set of changes were implemented.
• February 22, 2010 -- The second set of changes took effect.
• August 22, 2010 -- The third and final set of changes will be implemented on this date.

To help clarify things, we have organized all of the changes by their effective dates (shown above). Let's start by looking back at the new laws that went into effect in August of 2009.

August 20, 2009 - Summary of New Laws

The first phase of implementation occurred in the summer of 2009. Here are some of the key changes that were included:

1. Your credit card company must give you a 45-day advance notice of any rate increase. In the past, they only had to give you a 15-day notice. This new law also applies to other significant changes to your account.
2. The company must inform you about your right to cancel the card, before a rate increase goes into effect. This is part of the 45-day advance notice mentioned above.
3. If you receive an advance notice of a rate increase, and you choose to cancel the card and pay off the existing balance, you can pay it off at the original interest rate (the lower rate). Additionally, they cannot require you to pay it off immediately -- you will still be able to do it in monthly increments.
4. Your statement must be mailed to you at least 21 days before the due date for payment. In the past, credit card companies only had to mail statements 14 days before the due date. So this gives you an extra week of notification, after which you must make your payment.

The new credit card laws outlined above went into effect on August 20, 2009. That was the first phase of implementation. The second set of changes took effect on February 22, 2010. These new rules are outlined below.

February 22, 2010 - Summary of Changes

The majority of new regulations went into effect on this date. They include the following requirements:

1. Your credit card company cannot increase the interest rate or fees (APR) on your existing balance for one year after the account is opened. In other words, the so-called "retroactive rate increases" are now prohibited.
2. There are some exceptions to the above-stated rule. The card issuer can increase the APR for an existing balance if: (A) they disclose such an increase when the account was opened; (B) you're using a variable-rate card, and the published index has increased; (C) you have completed a pre-arranged "workout" plan, such as a debt-reduction agreement; or (D) you are delinquent on a payment by 60 days or more.
3. Once your credit card account has been open for more than a year, the company can raise your interest rate. But the new / higher rate can only be applied to new purchases made after the first year. Additionally, this kind of rate increase must be disclosed to you at the time you open your account.
4. If you have a card with multiple interest rates, any amount you pay above the minimum payment must be applied to the balance with the highest interest rate first. For example, if you have a low rate for a balance that you transferred from another card, but a higher rate on all new transactions, any amount you pay over the minimum must be applied to the higher-interest balance first. This obviously works to your advantage.
5. The new credit card laws also prohibit what is commonly referred to as double-cycle billing, or two cycle billing. This is when they assign interest rate charges for the current balance as well as the average daily balance from the last billing period. Starting in February 22, 2010, the new laws will outlaw these double-cycle billing practices.
6. Some changes are designed to improve disclosures made by your credit card company. For example, when they send you your statement, it must include a box that shows you how much you've paid in interest and fees during the current year. Your statement must also clearly explain the consequences of making only the minimum payment each month.
7. Your statement must also tell you the monthly payment that would be required to pay off your existing balance within three years (including interest). This disclosure is particularly helpful for people who want to eliminate their credit card balances altogether, perhaps through a debt-reduction plan.
8. Your statements must also clearly show the due date for your next payment, as well as any fees that might be imposed for late payments. It must show the date after which you would encounter such a penalty.
9. Card companies can no longer change the payment due date from one month to the next. In the past, this was one of their favorite tricks used to impose penalties. Going forward, the due date for your payments must be on the same day each month.
10. To piggyback on the change mentioned above, your credit card company must accept your payment if it is received by 5 PM local time on the due date. In other words, they can no longer establish early morning deadlines as a way of imposing a late-payment fees.
11. After February 22, 2010, your credit card company will no longer allow purchases that exceed your credit limit, unless you "opt in" to such an arrangement. This was another one of the industry's favorite tools for generating penalty fees. In the past, if you made purchases beyond your limit, the card company would allow the transaction and charge you a hefty fee. Going forward, however, you must choose to participate in such over-the-limit processing. Otherwise, these transactions will be denied at the point-of-sale.
12. With this wave of changes, there will also be some new rules relating to younger consumers. Consumers under the age of 21 must now have a cosigner to open a credit card account, or else they must document their financial ability to repay the debts.

That's a summary of the new credit card laws that will take effect in February 2010. The last phase of implementation is scheduled for August 22, 2010. You can find a summary of those changes below.

August 22, 2010 - Next Round of Credit Card Laws

Starting on the above date, and at least every six months, credit card companies must review all of the rate increases they've made, dating back to January 1, 2009. During this review process, they must reassess the risk factors that prompted them to increase the cardholder's rate and APR. If they feel the increase was justified, they must explain it to the customer in writing. Otherwise, they must reverse the increase.

As you can see, there are many significant changes that will take place during this three-phased implementation. In fact, this new set of credit card laws represents the largest overhaul of financial regulation since the Truth in Lending Act was created in 1968. These laws will protect consumers from many (but not all) of the abusive practices that card issuers have developed over the years.

How to Report Violations

These new laws are actually an amendment to the Truth in Lending Act. So it's the Federal Trade Commission (FTC) that enforces these laws. If you believe your card issuer has violated some aspect of this act, you should report them to the FTC. The company could be fined up to $5,000 per violation. If you need to file a complaint, just visit the FTC website and look for the link that says "file a complaint." From there, just follow the instructions that are given to you.

© 2010, Cornett Communications. All rights reserved.