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There has been a lot of hype about the new credit card bill. It starts with doom and gloom by the financial institutions, who must clean up some of their most onerous lending practices. And it ends with strutting by politicians, acting as if it’s the perfect solution to slimy problems. Neither accurately represents the impact of the bill.
The final version of the legislation, with all changes and edits integrated into the text, will be available when President Obama signs the bill. Key positive issues addressed in H.R.627, Credit Card Act of 2009.
- Those gnarly documents you’ve received along with your credit card – folded into a small size, printed in about a 4 point font on tissue weight paper, and written in legalese baffling to many attorneys . . . will be gone. New account rules must be written in clear language, understandable by average consumers. And they must be posted in an easily accessible location on the credit card provider’s web site, where you can read them before you apply for a credit card.
- Once you’ve agreed to specific terms for an account, the financial institution cannot change your terms because they decide they need to jack up their corporate revenues. However, there are many loopholes written into the legislation. It’s not layered under legal mumbo-jumbo. I suggest you read Page 3, Sec. 171.
- Creditors must provide you with the consequences of only making minimum payments. I’d like to see calculators, akin to the readily available mortgage calculators, so you can enter your account information and calculate the time it will take you to eliminate account debt with various amounts paid.
- With an open-ended credit card account (That is not an introductory promotional rate.), interest rate changes cannot be made, unless they are included under the exceptions in Sec. 171, during the first year after the card is issued. In addition, rates cannot be raised more frequently than every six months. And accounts must be evaluated every six months after an increase to determine if circumstances have changed, which will warrant a reduction in interest rates.
- If you exceed the limit on a credit card, the company cannot simply process the transaction and charge you an over-limit fee. You will have to approve the fee before a merchant can process your purchase.
- You can no longer be billed for a balance you paid off during the previous month, before a current billing cycle. That’s called double-cycle billing. It’s prohibited.
- An interest rate increase cannot be applied to previous purchases.
- You must receive a 45-day notice before an interest rate increase goes into effect.
- If you have a credit card balance that includes purchases made at more than one interest rate, your payments must apply to the portion of your bill with the highest interest rate first.
- For subprime accounts – those cards that usually start with a limit of $100 or $300 – financial institutions will no longer max out your new account with fees that cause more severe damage to your credit scores because you have a new, maxed out account. Under the new rules, fees charged to open or maintain these accounts cannot exceed 25 percent of the limit on the account during the first year the account is open, or $25 for an account with a $100 limit.
- There must be a minimum of 21 days between billing and your due date. Your monthly due date cannot jump around from month to month, in an attempt to cause you to pay late.
- All information related to late payments and a clear explanation of when late payments will result in an interest rate increase must be fully disclosed prior to opening an account.
- Bogus advertising of free credit reports, which require purchasing services to receive the credit report, must make it clear that actual free credit reports are available at www.annualcreditreport.com .
- No credit cards will be issued to anyone under 21 unless they can prove they have the independent means to repay the debt. When an adult authorizes card usage by someone under 21, the credit limit on that account can only be increased after the over-21 cardholder approves the change.
- On prepaid credit cards, gift cards, and store cards dormancy, inactivity or service fees may only be charged after 12 months. There are some additional clearly defined circumstances when fees will be permitted. These will be easier to read in the signed version of the bill. In general, these cards cannot have expiration dates although fees may be assessed after a year if they are clearly disclosed on the card.
The Credit Card Act of 2009 is a giant step forward, after much posturing by major financial institutions, which issue most credit cards. This bill is a compromise; it begins to protect consumers from usury practices by legitimate lenders. Next week, I’ll discuss essential credit components ignored or inadequately handled by the legislation. And I’ll explain the ongoing review planned by the Board of Governors of the Federal Reserve System.