In December, the Board of Governors of the Federal Reserve System issued new rules to protect credit card users from abuse by credit card companies and banks.The new rules take effect July 1, 2010.According to the Web site, www.creditcardreform.org, which is sponsored by the Consumers Union, the new rules address five common credit card problems.Interest rate increasesThis rule allows credit card companies to raise the interest rate on existing balances only if the minimum payment is not received within 30 days after the due date. However, if the card was opened with a variable interest rate, the credit card company can increase the rate according to the terms of the original offer.After a credit card account has been open for a year, the credit card company can raise the interest rate on future purchases if the company gives 45 days notice.Fair allocation of paymentsThis rule requires credit card companies to apply the entire payment to the balance with the highest annual percentage rate or apply the payment proportionally among the balances.Time to make a paymentThis rule prohibits credit card companies from treating a payment as late unless the credit card statement is mailed or delivered at least 21 days before payment is due. However, if a statement is delivered electronically, the credit card company can deliver the statement less than 21 days before payment is due.Elimination of two-cycle billingThis rule prevents credit card companies from reaching back to an earlier billing cycle when calculating the amount of interest charged in the current billing cycle.Financing of security deposits and issuance feesThis rule prevents credit card companies from financing fees for opening a credit card account if the fees total more than half the credit limit.More changes may be coming soonerConnecticut Sen. Chris Dodd, chairman of the Senate Committee on Banking, Housing and Urban Affairs, re-introduced his Credit Card Accountability, Responsibility and Disclosure Act, also known as the CARD Act, in February.A summary of the CARD Act is available at Dodd’s Web site: www.dodd.senate.gov.Some provisions of the CARD Act overlap the Federal Reserve’s new rules by making these requirements of credit card issuers:
- cardholders must be given 45 days notice of any interest rate increase
- interest rate increases can only be applied to future credit card debt
- payments must be applied first to the credit card balance with the highest rate of interest
- interest cannot be charged on debt paid on time (two-cycle billing)
- credit card statements must be mailed 21 days before payment is due, instead of the current 14 days
- increasing interest rates on cardholders in good standing for reasons unrelated to the cardholder’s behavior with respect to that card
- changing the terms of an existing credit card contract for the length of the card agreement
- setting early morning deadlines for credit card payments
- charging a late fee if the card issuer delayed crediting the payment
- charging of interest on credit card fees, such as late and over limit fees
- charging a fee to make a payment
- charging multiple over-limit fees for exceeding a card limit and allows such fees only when a cardholder’s action, rather than a fee or finance charge, causes the limit to be exceeded
- apply payments made at local branches the same day the payment is made
- lower penalty rates imposed on a cardholder if the cardholder commits no further violations after six months
- allow customers closing their accounts to pay under the terms in force at the time the account is closed
