New Rules to Close CARD Act Loopholes, Protect Consumers

The Federal Reserve last week approved new amendments to last year's Credit CARD Act,seeking to prevent card issuers from finding loopholes to harbor hidden fees and deceive consumers. The amendments go into effect Oct. 1.

Continue Reading Below got a break down on what the proposed rules mean for consumers's Gerri Detweiler.

Detweiler said the first major amendment bars credit card issuers from basing credit decisions on overall household income and forces them to instead focus on the individual applying, meaning a non-working spouse cannot obtain a new card or higher credit line based on what his or her spouses' income may be.

"I didn't support that position," Detweiler said. "There is a valid case to be made that a non-working spouse should establish their own line of credit, and this will likely make it more difficult for non-working spouses to get their own cards."

A second amendment is aimed at stopping card companies from promising interest fee waivers and promotional rates, and then going back on their word. Under the amendment, companies cannot increase rates on existing balances unless a payment is 60 days late or the card has a variable interest rate. They also cannot revoke promotional interest rates.

"The promotional rate can't be yanked away because you are an hour late on payment," she said.

Finally, the third amendment targets fee harvester cards, which Detweiler said are aimed at consumers with bad credit. These cards charge fees before an account is even opened, Detweiler said, including for the application itself. But under the Fed-approved new rules, first-year fees have to be 25% or less of the credit limit on the card.

"This will put pressure on the sub-prime credit cards," she said. "It's easier for people trying to get back on track to end up soaked with debt."

All in all, Detweiler said the new rules are a win for consumers.

"It's easier to understand what you are getting, and to get what they tell you you are getting," she said. "It looks like there is still work to be done in terms of tightening the disclosure, but issuers will be more straightforward in the future. The industry will be less based on tricks and traps than it was in the past, but it's still not hard to get in over your head."