Thursday, February 18, 2010
Still Need to Beware the Latest Credit Card Tricks and Traps
WASHINGTON, D.C. – Consumers will finally get some relief from predatory credit card lending practices starting on February 22. That’s when the Credit CARD Act of 2009 goes into effect and card issuers will have to abide by a new set of rules that aim to rein in unfair interest rate hikes and fees. The new law comes after many consumers have experienced big interest rate hikes in recent months.
“After months of jacking up interest rates on money consumers already borrowed, the party is over for credit card companies,” said Pam Banks, Policy Counsel for Consumers Union. “These new rules will put an end to some of the most abusive credit card lending practices that have trapped millions of Americans in debt and made it harder for them to make ends meet. Consumers still need to be on the lookout for unfair practices, but this new law is a big step forward.”
Among the key provisions of the law that go into effect on February 22 are:
Limits on interest rate hikes on your existing balance: Your interest rate can never go up on your existing balance unless you have a variable rate card, a promotional rate has expired, or if you are more than 60 days late making your minimum payment
Restrictions on how long penalty interest rates can last after late payments: If your interest rate goes up because you were more than 60 days late, your credit card company is required to restore your old rate if you make on time payments for the first six months after the rate increase.
Protections to help you pay your bill on time: Credit card companies can’t keep moving around your due date to try to trick you into making a late payment. Your payment will now be due on the same day each month and as long as your payment is received by 5pm at the bank's location on that day, it can’t be considered late.
Restrictions on over-the-limit fees: You can’t be charged an over-the-limit fee unless you have asked your credit card company to allow transactions that exceed your credit limit. Over-the-limit fees may be imposed only once per billing cycle if the balance is above the credit limit on the last day of the billing cycle.
Fair application of payments: Any amount that you pay above the minimum payment must be applied first to your balance with the highest interest rate before being applied to lower interest balances.
No more two-cycle billing: Credit card companies cannot reach back to an earlier billing cycle when calculating the amount of interest you can be charged in the current billing cycle. The interest you pay will be on the current billing cycle’s balance, not higher earlier balances.
For a more complete list of the new credit card protections that go into effect, see:
Although the new law offers significant new protections, there are some practices that consumers will have to continue watching out for, including:
There are No Limits to the Size of Penalty Rates: The new rules don’t cap the size of penalty interest rates. The Federal Reserve Board will be issuing new regulations soon to make the size of penalty interest rates more fair, but right now there are no limits on how much a credit card issuer can hike your rate.
Your Minimum Payment Can Still Go Up Sharply: Your minimum payment can go up if your interest rate goes up. Under the new rules, credit card issuers can raise it to the level required to pay off your balance in five years. But credit card issuers are free to raise your minimum payment to any level if they do so without raising your interest rate.
Your interest rate can still jump for no reason for future purchases: Credit card issuers can still raise interest rates at any time for any reason on future purchases after the first year a card is opened. Card issuers will have to give 45 days notice before they apply a new rate to future purchases, but the new rate will apply to all purchases you make 14 days after the notice is sent out.
There are no restrictions on the types of fees card issuers can charge: Credit card companies have been coming up with all kinds of new charges, including dormancy fees, fees to receive a paper statement, and annual fees. That’s why it’s so important to review all mailings you receive from your credit card company so you won’t be surprised by any new fees.
Michael McCauley – 415-431-6747, ext 126
David Butler – 202-462-6262