The Credit Card Accountability, Responsibility and Disclosure Act (aka the Credit CARD Act) takes effect Monday, nine months after President Obama signed the bill.
The bill, which passed with strong bipartisan support: 357 to 70 in the House and 90 to 5 in the Senate, features a slew of new regulations which are said to protect consumers from predatory card company practices.
“Credit cards were never supposed to be free, but they were never supposed to be unfair. The new law goes far to prevent it from being unfair,” said Ed Mierzwinski, a lobbyist for the US Public Interest Research Group, during a press teleconference Thursday to discuss the new legislation.
The Credit CARD Act aims to protect consumers on a number of levels, most notably from penalty interest rates. Here is a breakdown of some of the new regulations:
45-Day Advanced Notice of Increased APR
The new law mandates credit card companies 1) provide cardholders with a 45-day advanced notice of increases in interest rates and 2) then allow them to cancel their account before the new interest rates take effect. Plus, it prohibits credit card companies from making increased interest rates retroactive.
No Paying Interest on Overlimit, Late Fees
The Act limits a number of fees and is particularly beneficial to cardholders who pay on time, as it bans “double cycling billing,” the practice where card companies charge interest on debt paid on time. New rules also restrict over-the-limit fees by requiring companies to provide cardholders with the option of a fixed-credit limit; thereby, eliminating any potential for such types of fees. Plus, card companies no longer will be able to charge interest on overlimit fees and late fees. The Act even bans late fees for bills due on Sunday or a holiday.
The Right to Reject
Pre-approved cardholders can reject the card (before activation) without hurting their credit.
Extended Billing Period
Card companies must provide cardholders with 21 days notice of due payment. That’s a whole week more than the current 14 day requirement.
Protection of Young Consumers
Students are among the most likely to fall prey to card companies. According to a 2008 PIRG survey, 66% of students age 18-21 have at least one credit card, and those responsible for their own card on average graduate with $2,623 debt.
Previously, card companies set up on-campus stands to seduce students with free food—donning the goods to students only if they filled out an application form. The new rules ban card companies from requiring students fill out the form to receive freebies.
The law also stipulates Universities make all relationship with banks transparent (by posting affiliation on the University Web site). Students’ ability to pay up is also important. In the past, card companies granted cards to almost all students. Under new rules, consumers under age 21 must provide a co-signer or evidence of independent income.
The Everlasting Gift Card
The act even protects those leftover holiday gift cards, banning stores from incurring dormancy and inactivity fees—and even expiration dates.
Need for Further Reform
Still, according to the government watchdogs, the new Credit CARD Act is just a beginning.
“[The Act] will save consumers money but consumers need to be able to compare credit cards as easily and effectively as they can compare toasters,” said Elizabeth Warren, chair of the TARP Congressional Oversight Panel.
Both Warren and Mierzwinski applauded the act but urged the need for further reform, arguing the real solution will be in the creation of a new agency to enforce these rules: the Consumer Financial Protection Agency. The House has passed legislation to create the new government group, and the Senate is expected to follow suit.