New credit card rules coming soon

04.30.09
By John Ulzheimer

Consumers who feel like they are being treated unfairly by their credit card issuers can take solace: Change is coming. This change is in the form of two pieces of proposed legislation as well as new rules by the Federal Reserve that would help to protect consumers from what many deem as unfair treatment by credit card companies. These rules and legislation differ only slightly from each other and are summarized as follows:

The Credit Cardholders’ Bill of Rights Act introduced by Representative Carolyn Maloney as H.R. 627. Its purpose: “To amend the Truth in Lending Act to establish fair and transparent practices relating to the extension of credit”. This new legislation, if passes, would accomplish the following:

• Restrict the re-pricing of existing balances
• Restrict the re-pricing of future balances
• Give consumers 45-day advanced notice of interest rate increases
• Allocate payments towards the highest-rate balances
• Prevent double-cycle billing
• Allow consumers to opt out of any increase in interest rates by closing their card account while they pay off the existing balance at the existing rate
• Require that statements be mailed 21 days before their due date and give a 21-day grace period
• Must allow consumers to reject any transactions that put them over their credit limit and thus avoid the over-limit fee
• Allow cardholders to make a payment using their method of their choice (phone, e-pay, paper check, in branch) without any additional fees

The Credit Cardholders’ Bill of Rights would go into effect July 1, 2010 or within one year of being enacted, whichever date comes first. As of April 2009, it is in the beginning stages of the legislative process and is being deliberated and investigated by the House Financial Services Committee.

The second proposed new law is further along in the legislative process:

The CARD Act (Credit Card Accountability Responsibility and Disclosure Act) introduced by Senator Chris Dodd as S.414. Its mission statement: “To amend the Consumer Credit Protection Act, to ban abusive credit practices, enhance consumer disclosures, and protect underage consumers”. The legislation would accomplish the following:

• Restrict the re-pricing of existing balances
• Restrict the re-pricing of future balances and the length of time a higher price can last
• Give consumers 45-day advanced notice of interest rate increases
• Allocate payments towards the highest-rate balances
• Prevent double-cycle billing
• Allow consumers to opt out of any increase in interest rates by closing their card account while they pay off the existing balance at the existing rate and with no time restrictions on paying the account in full
• Require that statements be mailed 21-days before their due date
• Must allow consumers to reject any transactions that put them over their credit limit and thus avoid over-limit fees
• Protect cardholders from over-limit fees caused by other fees pushing the cardholder over their credit limit
• Allow cardholders to make a payment using their method of their choice (phone, e-pay, paper check, in branch) without any additional fees
• Restrict marketing to or opening new accounts for individuals under 21 years old without an “of-age” co-signer
• Protect gift cards from most inactivity fees

This law would go into effect no longer than nine months after being enacted. The Committee on Banking, Housing, and Urban Affairs reviewed the CARD act and on March 31, 2009 recommended that the entire Senate consider it.

Finally, the new Federal Reserve rules, scheduled to take effect on July 1, 2010 will bring important changes, including the following:

• Protect consumers from unanticipated interest charges, including rate increases during the first year and on pre-existing credit card balances
• Prohibit banks from charging interest using the “two-cycle" or “double cycle” billing method
• Require that consumers have reasonable amounts of time to make credit card payments
• Forbid the use of payment allocation methods that unfairly maximize interest charges
• Place constraints on subprime credit cards by limiting the fees that reduce the amount of available credit

One thing is certain: Change is coming!

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Credit card changes could happen sooner than July 2010.