The Credit Card Accountability, Responsibility and Disclosure (Credit CARD) Act of 2009 should help people manage their finances because they’ll have a clearer picture of their credit, says Debra Pankow, North Dakota State University Extension Service family economics specialist.

The act went into effect in February 2010.

“Its effects are far-reaching and include everything from restrictions on interest rate increases and over-the-limit fees to changed billing methods and even new rules for retail gift cards,” Pankow says.

The act also includes strict rules about issuing credit to young adults under age 21. For example, credit card applicants under age 21 must show proof of income or have a co-signer to be approved for a credit card.

Here are the major Credit CARD Act provisions:

Disclosure Requirements

• Credit card issuers must provide consumers with 45 days’ notice (up from the previous requirement of 15 days) before changing key account terms, such as increasing interest rates and fees. This requirement does not apply to credit limit changes or interest rate caps, however.
• Credit card issuers must display on billing statements how long paying off the existing balance and total interest cost would take if the card holder makes only the required minimum payments. Issuers also must display the payment amount required and total interest cost to pay off the existing balance in 36 months.
• Credit card companies must provide on every statement a toll-free phone number and Internet address for cardholders to request payoff balances.
• Creditors are required to provide a 30-day advance notice of account closure.

Interest Rates

• Credit card issuers cannot raise a customer’s interest rate to a penalty or default rate (often 24 to 32 percent) because of late payments to another creditor on an unrelated account.
• With the exception of clearly disclosed “teaser” rates or a change in the “index” (for example, the prime rate) used to calculate interest on a variable-interest-rate credit card, initial credit card contract terms must remain stable for an entire year before any changes are made.
• So-called “teaser” rates (low initial promotional interest rates that last for a limited time) must be in effect for at least six months.
• Interest rates on an existing balance cannot be raised unless payments are more than 60 days late or a teaser rate expires. If rates are raised and a consumer pays at least the minimum balance on time for six consecutive months, the previous lower interest rate must be restored.

Fees

• Over-the-limit fees will be charged only if consumers give their permission for creditors to process transactions that would place the account balance over the approved maximum limit.
• Credit card companies cannot impose more than one over-the-limit fee on a credit card per billing cycle.
• Late-fee charges are prohibited when cardholders present proof that their payment was mailed within seven days of the due date.
• Credit card issuers are prohibited from charging fees greater than 25 percent of a credit card’s credit limit.

Billing Traps

• Credit card bills must be mailed 21 days before the bill is due instead of 14 days, as previously required.
• Late fee “traps” such as weekend due dates, shifting payment dates and early morning deadlines are prohibited. Payment received by 5 p.m. on the due date will be considered on time.
• Payments greater than the required minimum payment must be applied, in descending order, starting with the balance with the highest interest rate.
• Lenders cannot use the balance from the previous month to calculate interest in the current month.

Gift Card Regulations

• Gift cards cannot expire for the first five years after they are issued. Of course, card holders have no guarantees if the gift card issuer goes out of business.
• Inactivity fees cannot be assessed unless a gift card has not been used for 12 months.

“While the Credit CARD Act has made substantial strides in eliminating abusive credit card billing practices, there still are many ways that credit card customers can pay dearly for borrowed money,” Pankow says.

They include:

• Transaction fees, such as balance transfer and cash advance fees, which were not affected by the Credit CARD Act and can be raised
• Annual fees that can be raised or imposed on credit cards that previously did not charge a fee
• Changes to policies on credit card grace periods
• Annual percentage rates imposed as a penalty
• Credit limits and minimum payment requirements, which are subject to change by creditors

“When dealing with credit card companies, knowledge is power,” Pankow says. “This includes knowledge of the Credit CARD Act and knowledge of the terms of individual credit cards.”

She recommends credit card holders:

• Read all bill inserts and other correspondence from credit card companies to be aware of changes in key terms, such as interest rates, required minimum payments and fees.
• Call the card issuer’s toll-free number and request an explanation of questionable items.
• Try to pay monthly credit card bills in full or, at the very least, make more than the minimum payment.
• Always pay credit card bills on time and make debt repayment a high-priority financial goal.
• If you have credit cards with rewards programs, use them before you lose them.
• If you have credit cards that you want to keep but use infrequently, consider using them every four to six months to avoid having these accounts closed because of inactivity.

NDSU Agriculture Communication