Friday, January 22, 2010

The Federal Reserve steps in: New Credit Card Rules give greater consumer protection

The Federal Reserve's new rules for credit card companies take effect on Feb. 22, 2010. Here's a quick list of some of the important changes that put in place to protect consumers.

Your credit card company has to tell you
  • When they plan to increase your rate or other fees. Credit card companies are required to give 45 day notice before: increasing interest rate, changing certain fees, making other significant changes to the terms of your credit card agreement.
  • But the 45 day notice requirement doesn't apply if your card has a variable rate tied to an index; if your introductory rate expires and your card is reverting to the "go-to" interest rate; or if you are in a work-out agreement and you've failed to make the payments as agreed upon.
  • How long it will take to pay off your balance if you only make the minimum required payments. Credit card companies are also required to tell you how much each payment would have to be for you to pay off your balance in 3 years.
New rules on rates, fees, and limits:
  • No interest rate increases for the first year. Exempted from this rate ceiling are credit cards tied to an index, credit cards that have a 6 month introductory rate (the card switches to the "go-to" rate after the introductory period), if you are over 60 days late in making a payment or if you're in a workout agreement and you've failed to make your agreed upon payments.
  • Increased rates apply only to new charges - Even if your credit card's rates increase after the first year, the new rate should only apply to new charges that you make. If you have a credit card balance, the old balance should be subject to the old interest rate.
  • Restrictions on over-the-limit transactions. You must inform your credit card company that you want to authorize/allow transactions that take you over your credit limit. Otherwise, if a transaction will cause you to go over your limit, the transaction may be declined. If you don't "opt-in" to over-the-limit transactions and the credit card company allows the transaction to go through, you should not be charged an over-the-limit fee. Even if you do opt-in, your credit card company can impose only one fee per billing cycle. You have the power to revoke your opt-in at any time.
  • Caps on high-fee cards. If your credit card company imposes fees (ie, application fee, annual fee), the fees cannot total more than 25% of your initial credit limit. This cap does not apply to penalties!
  • Protection for people under 21 - if you are under 21, you will be required to show that you can make payments or to obtain a cosignor to open your credit card. If you are under 21 and have a cosignor, your cosignor must give written consent if you request an increase in your credit limit.
Changes to billing and payment requirements:

  • Your credit card statement/bill must be mailed or delivered at least 21 days before payment is due.
  • The due date should be the same day of each month.
  • The cut-of time should not be earlier than 5 pm on the due date.
  • If your payment is due on a weekend or holiday, you will have until the following business day to pay.
  • If you make more than 1 minimum payment on your credit card bill, the company must apply the excess to the balance with the higher interest. Notable exception: if you have money owed on a deferred interest plan ("no interest due until...:) then, you can choose to apply the extra money to the deferred interest plan before other balances due. For two billing cycles before the end of the deferred interest period, your credit card company must apply your entire payment to the deferred interest rate balance first.
  • Credit card companies can only impose interest charges on balances due on the current billing cycle. Two-cycle or double-cycle billing is not allowed.
Remember, these changes take effect on Feb. 22, 2010. If you'd like to read about the changes in greater detail, head to the Federal Reserve website at

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