What Will New Credit Card Regulations Mean for You?

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January 2010

In May 2009, the Credit Card Accountability, Responsibility and Disclosure Act of 2009, often called the Credit Card Act 2009 was signed into law. The first of the new credit card rules designed to protect consumers went into effect in late August 2009. The remaining regulations take effect in February 2010. The goal of this legislation is to provide new protections for consumers by providing for better disclosures about credit card terms and limiting some practices. Your credit union has always offered a very good card with clear and fair terms, but that has not been true of all issuers. Currently, for instance, many large credit card issuers are busy making changes to protect their profits before the new rules take effect. What do the new regulations and card issuers’ actions mean for you and your use of credit and credit cards? This report gives you a preview.

A few preliminary protections took effect in August

The new rules that launched on August 20 primarily try to ensure that consumers receive adequate notice of changes in account terms and have adequate time to pay accounts on time. Following are the main items:

Issuers must notify customers 45 days in advance (up from 15 days) of any "significant" changes to the terms. Such “significant changes” include these:

• Increases in the Annual Percentage Rate (APR) on fixed-rate cards. No notice is required for increases 1) for variable APR cards if the change results from the index changing or 2) for the end of a promotional rate period. For beneficial changes, such as lowering an APR, no notice is required.
• Changing the interest rate terms from a fixed rate to a variable rate, or from a variable to a fixed rate. (If you have had a fixed-rate card or think you have and typically pay little attention to card notices, it’s smart to recheck your card terms; many issuers have changed fixed rate cards to variable rates in recent months in anticipation of this change.)
• Increases to any fees.
• Changes to the minimum payment requirements.
• Changes to the method for computing the balance.
• A reduction or elimination of any grace period.

Some of the new protections for consumers Issuers must notify customers 45 days in advance of any "significant" changes to the terms. Billing statements must be mailed or delivered electronically at least 21 days before the due date. Restricts retroactive rate increases on existing balances. On new accounts, interest rates and fees can not be increased during the first year after the credit card account is opened. If a charge would put you over your credit limit, you must be informed immediately and asked to "opt in" to the over-the-limit-charge. 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. Payments on a single account must be allocated first to balances with higher interest rates.

Billing statements must be mailed or delivered electronically at least 21 days before the due date. The goal is to provide consumers adequate time to make payments on time and avoid late fees. The previous term of 14 days allowed was so short that many customers got caught by “gotcha” late fees.

A grace period must be at least a 21-day period extending from when the statement is mailed. Not all cards have grace periods. A grace period is the time after a purchase during which no interest is charged. The advantage of a grace period is typically that you pay no interest on purchases if you pay off your balance in full at each statement. Please note that CCU Visa^® cards have a 25-day grace period on all purchases.

These additional protections take effect in February 2010

The regulations that take effect on February 22, 2010, place a wider range of restrictions on card issuers with the goal of better protecting card users from deceptive or unfair credit industry practices.

Restricts retroactive rate increases on existing balances. Raising the interest rate on existing balances for “any time/any reason” or because you may have been late on another credit account (the practice of universal default) is prohibited. CCU cards, however, have never used universal default. Interest rates can be raised if you have made a payment late by 60 days or more after the due date, but the issuer must give you forty-five days notice and the option to cancel. After any interest increase, the issuer must periodically review your account with an eye to reducing the rate if you qualify. If the increase was caused by your late payment, then after you have paid on time for six months, under the new law, your interest rate should be reduced to its original, lower rate.

On new accounts, prohibits increases in interest rates and fees during the first year after a credit card account is opened. If the new account has a promotional rate, it must last at least six months and all terms for the account must be clearly disclosed when the account is opened.

If you opt to close an account, the issuer can not require immediate repayment of your balance. The card issuer must define the repayment plan as either of the following:

• The balance is to be paid over at least five years.
• The minimum monthly payment includes a percentage of the balance that is no more than twice the percentage required for the old minimum monthly payment.
• The consumer could be given the right to pay off the balance according to the current repayment terms that are associated with the account.

If a charge would put you over your credit limit, your purchase will be approved or denied based on your over-the-limit fees selection. If you opt–in, you are giving your permission to be charged over-the-limit fees, which would approve the charge. This means if you have chosen to opt-out of over-the-limit fees, the card can be refused if the charge will put you over your credit limit. 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. Please note, CCU cards do not have over-the-limit fees.

No fees are allowed to make a payment online, by telephone, by mail, or any other means. A payment fee is okay for an expedited payment arranged live through a service representative.

Payments on a single account must be allocated first to balances with higher interest rates. Payments that exceed the minimum payment must be applied to the balance with the highest interest rate. The exception is during the last two billing statements before a deferred balance is due. In this case, the excess payment must be applied to the deferred balance.

Payment due dates must be consistent and fair. Issuers must credit all payments received by 5pm on that day. Due dates must be on the same day each month, for example the 4th or the 15th. If the payment due date falls on a weekend, holiday, or other non-business day, the payment can not be considered late if received on the next business day. The date a payment is made at a local branch (if payments are accepted at local branches) will be considered the date the payment is posted.

Billing statements must include repayment disclosures. Statements must include:

• the period of time and total interest it will take to pay off the card balance if only minimum payments are made,
• the monthly payment amount required to pay off the card balance in 36 months,
• toll-free number for credit counseling and debt management services.

Current marketing of credit cards to college students is curtailed. To prevent current deceptive practices of blanket marketing to college students regardless of their ability to pay, credit cards may not be issued to anyone under age 21 unless there is a co-signer over age 21 or the under-21 applicant provides information indicating s/he can pay the bill.

What the new credit card rules don’t do

Although the new credit card rules provide many much-needed protections for consumers, they don’t mean that credit cards will be easier to get or cheaper. Instead, the opposite is likely, particularly given the fact that the U.S. economy and businesses are still working to recover from the recent credit crisis.

The new rules also do not prohibit card issuers from lowering credit limits or canceling accounts no matter how responsible the card holder has been or how good their credit if the card company judges that those actions benefit them. In fact, in anticipation of the new rules, some issuers have already taken such steps.

Watching for "Pre-emptive" actions some card issuers are taking now

Some card issuers are taking "pre-emptive" action before the new rules take effect. And they aren’t targeting just customers with the poorest credit record; responsible customers with great credit are also experiencing some of the following problems. Your best protection is to carefully read every communication you get from your credit card companies so that you can act if necessary. Pre-emptive moves by card issuers include:

• Raising interest rates and fees. Interest rates for some consumers have jumped 2, 4, 5, or more percentage points in the last few months. If your rate has been raised without cause in your view, consider using a different card with a lower rate. If you carry a balance, consider paying it off or, if that’s not immediately possible, moving it to a card with a lower rate. If you call customer service and tell them that’s what you plan to do unless they restore your lower rate, they may do so. It doesn’t hurt to try.
• Reducing credit limits. In the year April 2008 to April 2009, approximately one-third of credit card customers—an estimated 58 million consumers—had the credit limits on their accounts cut, according to a report from FICO company. FICO reported that a majority of consumers who experienced rate cuts in the second half of that year had good credit. If the credit limit on any of your cards has been cut in this way, you may wish to consider opening another account. Check out the CCU Visa card if you don’t have one.
• Changing cards from fixed-rate to variable-rate. The newly required 45-day notice for rate changes doesn't apply to index-based rate changes on variable-rate cards.
• Closing accounts. If you have credit accounts you have not used in a while, you may wish to make a regular small charge and pay off the balance on each statement to keep the account active.
• Adding annual fees. This used to be a common practice and experts think more card companies may use this to boost income.
• Revising rewards programs.
  

Check out CCU's Visa Cards

If you haven't checked out CCU's Visa cards, now is the time. CCU offers the Visa Platinum and Visa Classic cards with low interest rates that are well below the national average, no annual fee, a 25-day grace period, and other benefits.

For more information

CCU Visa Cards

Consumer Action Fact Sheet: New credit card provisions

Credit Cards: New Law Protects Consumers from Surprise Fees, Rate Increases and Other Penalties from the FDIC

Prepared for Corning Credit Union by Remar Sutton & Associates, January 2010. All rights reserved.

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