Wednesday, February 10, 2010

New Credit Card Rules - Finally!

In August of last year some of the new Credit CARD Act of 2009 rules went into effect, saving the most far reaching provisions until February 22, 2010. That’s right, just a few days from now. So, what has Congress in store for us now? Actually some decent regulations

1. Card Issuers will have to check on the customers ability to repay before issuing cards. Sounds common sense doesn’t it! It will be unreasonable, under the new regulation and always has been based on life, for a card issuer to give a card to someone without income or assets, and for a card issuer not to review such information.

Currently, most card issuers just check the credit ("FICO") score, or maybe the score and the recent payment history. NEW: Now there must be policies in place to determine the ratio of debt obligations to income; or the debt obligations to assets; or the amount the consumer will have remaining after paying debts. The card issuer may rely on the information provided by the consumer on his/her application. Otherwise the company will have to gather information on deposits, assets, income - just like a real lender. If you "stretch" your income on a credit application (show more significantly income than you make each month) do not look for the laws to help defend you.

2. Before you can be assessed an over-limit fee, you will have to AGREE to allow over your limit charges to be accepted. It is not like so many other programs where you have to say "no" or your in, here if you do not say "YES" you cannot be assessed a fee or penalized in any way if you are approved for an over-limit charge

Right now, many card issuers love it when someone goes $.01 over the authorized limit because the card company can charge a fee of whatever it wants, but commonly $39. True, you do not get rejected at the check-out counter but, maybe you would want to know before buying a hamburger at McD’s for $1.00 and paying $39 for the privilege.

3. If the Card Issuer is going to increase your rate, for any reason, you must receive at least 45 days notice, and then the increase can only apply to charges/cash advances AFTER the 45 day date. Old balances pay at the old rate of interest.

At the present, if you get a rate increase, your fault for being late too often or because the card company is greedy, the increase applies to all outstanding balances - old/existing and new. Now it will be only on the new activity.

4. Your rate cannot be increased, in nearly all circumstances, for the first 12 months you have your card. The exceptions include if you get a variable rate card where the interest rate is supposed to go up and down; or if you are more than 60 days late in the first 12 months.

Teaser rates - will be nearly a thing of the past. The company will have to disclose the teaser rate period and the actual rate it will charge after that period is up And the teaser period must be at least 6 months

5. If you are under 21, you will have to show that you can afford the payments on your maximum credit limit, or have an over 21 co-signor.

We all know of the horror stories about the 17 or 18 year old high school student who get an offer in the mail, sends back the YES I WANT IT postcard, gets a $7,500 credit limit, and then cannot make the minimum payments after one payment is missed and the rate goes from 5% to 30.99% Will this be annoying? Sure, but it will prevent a good deal of anxiety on the part of those under 21 who got "swindled"/misled/were easy marks. If the under 21 can show that he/she can pay, from a provable source, then the card company is permitted to issue the card.

6. Card issuers will not be able to make deals with colleges or high schools to come onto campus to offer cards if the card company offers the school an incentive to let it in.

Surprised that schools would get kick-backs? Why be surprised - look at college football! If there is any kind of permission given, both the school and the card company MUST disclose all arrangements; any that pay the school will be deemed illegal.

7. Payment dates must be the same day (1st 4th 8th 27th etc) each month and if the payment date falls on a holiday or weekend, not late fee or penalty can be assessed

Credit card companies love changing the day a payment is due to, for instance, "25 days from the date the last payment was received if it was not received late". Who knows when the company receives a payment. Also, weekends and holidays are bonus days for companies because they have earned a great deal of late fees the day after those days.

8. The new statements must contain information in bold type of the New Balance, Minimum Payment Due, and the Due Date. There must also be a warning of what will happen to the rate and when it will happen if a payment is late. The biggest change in statements is that each month it MUST show how long it will take to pay off the balance at the present interest rate if you make Only The Minimum Payment; AND HOW MUCH YOU WILL HAVE TO PAY, TO PAY OFF THE BALANCE IN 3 YEARS. It must also show how much in total you will pay in each case

9. Credit Card Issuers MUST post their agreements on their websites, have the agreements first approved by the Federal Reserve, and have the Federal Reserve Board posat them on the Fed’s comprehensive and advertised Card Agreement Website. (WELCOME TO 2010!)

Note: The full 841 page bill with commentary before fianl adoption is available at the Federal Reserve’s website but a shortened version along with the long one is at:

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