PART FOUR: THE CREDIT CARD ACT OF 2009 – THE CREDIT CARD ACCOUNTABILITY RESPONSIBILITY AND DISCLOSURE ACT
The Credit CARD Act of 2009 was enacted to standardize fair business practices among credit card issuers. Different parts of the bill take effect at different times to give the industry time to make the necessary changes. An underlying theme among all the changes is transparency, so as long as you’re being a good customer and READING YOUR STATEMENTS (this is in all-caps because I cannot stress enough how important it is to read your statements) there will be no surprises.
Like I said, this is rolling out in four steps. The bill was signed on May 22, 2009 with different parts coming effective at 90 days, 9 months, and 15 months after enactment. There are also changes to Reg Z / UDAP coming on July 1, 2010, but those will be mentioned in an upcoming article.
On August 20, 2009, the following changes were effective:
- Payment due dates must be at least 21 days after the statement is mailed, and cannot be considered late if they arrive before 5:00 PM EST. If the regular due date falls on a holiday or weekend, and the payment arrives the next business day, the payment cannot be considered late. If this is ignored, then the bank cannot charge a late fee. (Note: They count the date it was MAILED, not the date it was RECEIVED. If your mail service is slow, or you worry a bill might get lost, it’s worth calling your financial institution a few days after the statement prints (also known as your ‘cycle date’, this should be the same day every month) and getting the basic details – or signing up for paperless billing if your financial institution offers it.)
- Customers must be given a minimum of 45 days notice of any change in terms of their account, including APR changes, delinquency penalties, or any other significant change in terms.
- Customers must be given an opportunity to opt out of the account changes, though this usually means the closure of their account.
With many accounts, due dates will have changed. Keep an eye on your statements (I’m going to be beating this drum a lot – if you’re not reading your statements, you lose a lot of information and a lot of ability to take care of problems. Read your statements.) so there won’t be any surprises.
On February 22, 2010, the following changes will be effective:
- Repricing (changing the APR) of existing balance can not be done outside of a few specific circumstances, such as:
- In response to late payments – an APR can be raised to a ‘delinquency rate’ if a payment is received more than 30 days after the due date. If the balance is repriced in this way, however, there’s a mandatory 6 month ‘cure’ period – 6 consecutive months of on-time payments, and the APR must go down to what it was before.
- In response to an index – many banks have variable APR accounts where the APR is expressed as ‘prime plus X%’ or whatever, where your APR is calculated as a function of a different value, usually the Federal Prime Rate. Thus, if the Prime Rate fluctuates, your APR will as well.
- Introductory rates – many banks will offer an introductory rate that is significantly lower than their normal rate. This is permissible only if it is clearly disclosed that this is a temporary rate, when that rate will expire, and what the regular rate will be after the expiration of the introductory rate.
- After the first year on new activity only – After an account has been open for one full year, a financial institution may increase the APR on NEW ACTIVITY ONLY after giving 45 days notice and the option to opt out of the APR change. ‘New activity only’ means that the increased APR can not be applied to balances or charges on the account before the effective date of the APR change.
- Payments in excess of the minimum payment due must either go toward the highest APR balance first (typically cash advances) or split ‘pro rata’ among all balances – this means in proportion to the balance. If, for instance, you have a total balance of $100, which contains three balances – balance A at $20, balance B at $30, and balance C at $50, then once the minimum payment is satisfied, 20% of the remainder would go to A, 30% to B, and 50% to C.
- Over-limit authorizations will be handled as an opt-in service instead of an opt-out service. Basically, this means that by default, when you hit your credit limit, your card will stop working. Previously, many financial institutions would allow you to keep making purchases past your credit limit, and then charge extra over-limit fees for those purchases – even if you weren’t aware that you had exceeded your credit limit. Once this takes effect, you will have to specifically give consent to your financial institution in order for the purchases to be approved (and fee charged).
- Statements must have a due date that is the same each month.
- Payment fees can only be assessed for expedited service handled by a live representative of the lender, not for automated payments under any circumstances (phone, internet, etc).
- Applicants under the age of 21 must have a cosigner or be able to show proof of independent means to show that they are able to make payments on their account.
- Warnings must be included with statements advising the effects of paying only the minimum amount due – specifically, that it will take a very long time to pay off the account.
- Promotional rates or introductory rates can not expire in less than six months.
- Financial institutions must make the terms and conditions documents available on the internet.
Basically, the Credit CARD Act of 2009 was designed to put a stop to certain practices and methods used by some financial institutions that are, put simply, exploitative. The Act requires clearer disclosure, more fair terms, reasonable and consistent due dates, and requires financial institutions to consider an individual’s ability to pay the account off when deciding whether to extend credit. This will make it a little harder to get credit accounts or to get higher credit limits, but it will also make it a LOT harder to get in over your head with credit.
IV. WHAT ELSE?
This isn’t an exhaustive summary. There are other parts of the Act that come effective at different times, and some parts that depend on future findings – for instance, there’s a bit that requires that fees and penalties be ‘fair, reasonable, and proportional to the violation’ but specifies that a limit is not yet defined but will be further discussed.
V. WHAT DOES THIS MEAN TO ME?
It’s going to be harder for you to get into trouble with credit – but not impossible. Generally, if you read the fine print on your terms and conditions document, and read your statements, and ask about stuff you don’t understand, you’ll be okay. When in doubt, call and ask.