How Phase 1 of the Credit CARD Act Affects You

How Phase 1 of the Credit CARD Act Affects You

The first phase of the Credit CARD Act, signed in 2008, will go into effect starting August 20, 2009. There are a number of provisions, which will help to protect you, the consumer. Those reforms are as follows:

Changes to Credit Card Terms

Once this provision takes effect, credit card companies must provide written notice to customers 45 days prior to any significant changes to the terms of a credit card account, including an increase in the annual percentage rate (APR). The current law only requires a 15-day notice.

Note: If you have a credit card with an introductory rate, which was scheduled to expire after a fixed amount of time, this provision is not required. Also, if you sign up for a card with a variable interest rate, or fail to make scheduled payments on a reduced interest hardship plan, your creditor is not required to give you the same amount of notice.

Creditors are also required to advise you in the same notice of your right as a consumer to cancel your credit card before the changes in terms or raise in interest rate goes into effect. If you do so, the creditor generally may not apply the increase in APR or other changes to your account. You will be required to pay off the balance under the previous terms, and the card issuer is allowed to increase your minimum payment to as much as double your current payment.

Billing Rules

Currently, credit card companies are only required to mail your statement 14 days prior to the due date. With the enactment of the new law, creditors must generally mail or deliver you statement 21 days before payment is due. This is to help insure consumers will not miss payments because of delays in the mail, long weekends or other brief delays.

Also according to the Act, credit card companies must now accept any payment arriving prior to 5:00pm on the due date as "on time." Many creditors currently operate under a "morning deadline" rule, which counts any check arriving in the afternoon of the due date as "late" and therefore subject to late fees.

More to Come

You may have read about other consumer protections, like requiring individuals under the age of 21 to have an adult co-sign for a credit card, or requiring creditors to apply your payments to your highest interest debt first. These changes do not go into effect until next year. The next phase of the reform will be introduced in February 2010 and the remainder of the bill will be introduced in August 2010.

Starting in February, new rules will also prevent credit card companies from using billing "traps" like setting due dates on holidays or weekends, when payments are not accepted. Creditors will also be prohibited from changing due dates without warning. If your due date falls on a Sunday or a holiday when the US mail does not operate, the credit card companies will also be required to accept a check which arrives a day later as "on time."

August 2010 reforms include requirements for all gift cards to have expiration dates printed in caps directly on the card. It will also require credit card companies to allow borrowers to "earn back" their lower APR rates with steady on time payments.

While these reforms will help provide some relief to consumers from unfair practices, it does not absolve the consumer from responsibility when it comes to maintaining good credit. It is still up to the consumer to make responsible borrowing decisions, to make on-time payments and to manage their accounts. However, by doing away with some of the credit industry's trickier rules and requiring greater transparency in the process, it should be easier for you to hold up your end of the bargain.