June 2009

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New Credit Card Law: What does it mean for you?

Here's a summary of some of the legislation's provisions:

• Interest rate increases are restricted during the first year after a credit card account is opened.
• Interest rate increases are restricted on existing balances. For example, the interest rate can be increased for late payment only if the payment is received 60 days or more after the due date.
• If the interest rate was increased due to late payment, if the consumer makes the minimum payment on time for 6 months, the interest rate must go back to the original lower rate.
• If the interest rate is increased, the card issuer must review the account every 6 months and if the review indicates, decrease the interest rate.
• Over-the-limit fees can not be charged unless the cardholder has asked that transactions that exceed the credit limit be allowed. Over-the-limit fees can be charged only once per billing cycle if the balance is above the credit limit on the last day of the billing cycle.
• Fees to make a payment can only be charged for expedited payments arranged through a service representative.
• Two-cycle billing—using charges from a previous billing cycle along with the current billing cycle to calculate the interest charge—is prohibited.
• Payments—that exceed the minimum payment—must be applied to the higher interest rate balance.
• A credit card can not be issued to a person under age 21 unless there is a co-signer over age 21 or that the under 21 applicant provides information that shows they have the means to pay the bill.

While most of the provisions won't take effect until Feb 22, 2010, these two take effect on Aug 20, 2009:

• Banks most notify customers 45 days in advance of any change in interest rates for future purchases.
• Credit card statements must be mailed out 21 days before payment is due.

The law also has protections for store gift cards and prepaid cards. These protections include:

• Cards can not expire for 5 years from the date of purchase or when money was last added to the card.
• No fees may be charged if the card was used within the last 12 months. A monthly fee may be charged if the card has not been used for 12 months.

Here's a more detailed summary (pdf) of the legislation from Consumers Union.