Populist rage over the hundreds of billions of taxpayer dollars doled out to financial institutions like American International Group (AIG) and Citigroup, has led to the passage of laws that change many long-standing practices in the credit card industry. These rule changes could cost the industry billions in fee revenue.

President Obama signed the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or the CARD Act, into law in May 2009, but many provisions have only come into effect in February 2010. These features are far-reaching and consumers need to understand how the changes impact them.

Advance Notice of Rate Increases
Your credit card issuer must now give at least 45 days advance notice before a rate increase goes into effect. This 45-day notice also applies to fees and "significant changes" to the terms of the card. Also, if you miss the deadline for a payment, the credit card company can't suddenly jack your interest rate higher until you are at least 60 days late.

The credit card company can still charge a late fee for a missed payment, but it must be "reasonable and proportional to the violation." Consumers no longer have to worry about their 0% balance suddenly jumping to 24.99% because they were one day late.

Another change in the law that will protect consumers is that if you fall 60 days behind in paying and see a rate increase, this rate increase can be reversed if you make your payments on time for the next six billing cycles. (The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly in Take Control Of Your Credit Cards.)

This does not mean that your rate can't go up. Besides being 60 days late, your rate can move higher when your promotional time expires (0% for six months), or if you have a variable rate credit card where the interest rate is tied to an index like the prime rate.

Right To Cancel
If the card company does make changes to your account, you have the right to cancel the card before the changes take effect. This doesn't give you a free ride, however, as the credit card company can close your account and require you to pay your balance in five years with a higher minimum payment.

Payment Allocation
Another change going into effect in February 2010 will impact the allocation of payments method made by the credit card company. When a consumer makes a payment above the minimum, this extra payment will be used to pay down any higher rate balances first before lower rate balances.

Payment Dates
To help consumers remember when to pay, the new law requires the payment date to fall on the same date each month, and this payment date must be at least 21 days from the mailing date of the statement. (The average American household has four cards, but does that mean more is better? Learn more in How Credit Cards Affect Your Credit Rating.)

Pay Off Information
Monthly statements mailed to customers will also include information on how long it will take to pay off your balance if only the minimum payments are being made. This should help consumers understand the long-term implications of accumulating debt.

Underage Borrowers
Customers that are under 21 are the targets of intense marketing campaigns by credit card companies, and this new law provides protection for them as well. Under-21 customers will now have to prove they can make payments or get a cosigner for the card. To get credit limits raised, the cosigner must also approve the increase.

The Bottom Line
New rules on rates, fees and terms on credit cards may be a game changer for industry profitability, and may also have the effect of changing the wild spending habits of American consumers. This can only be beneficial to the U.S. in the long term.

Related Articles
  1. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  2. Credit & Loans

    5 Ways to Maximize Your Credit Card Points

    How to get the most bang for your rewards buck.
  3. Investing

    How to Effectively Compare Credit Card Rewards

    There are so many different reward credit cards that are available. Understanding how each type work will help you pick the best card for your needs.
  4. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  5. Credit & Loans

    Joint Credit Cards: The Pros and Cons

    A joint credit card may sound like an easy way to split the bills, but make sure you know what you’re getting into first.
  6. Credit & Loans

    Travel Tips: Avoid Exchange Rate Headaches

    How to avoid the most common issues and hassles raised by exchange rates while traveling abroad.
  7. Investing

    Why U.S. Credit Cards Are Getting a Chip and Pin

    With the introduction of EMV technology into U.S. credit cards, consumers should worry less about fraud and counterfeiting.
  8. Credit & Loans

    What Qualifies as a Nonperforming Asset?

    A nonperforming asset is a loan made by a financial institution to a borrower who has failed to make any scheduled payments for at least 90 days.
  9. Credit & Loans

    Fixing Your Credit Score: A Do It Yourself Guide

    Following these five steps can go a long way toward repairing a low score.
  10. Personal Finance

    Best Ways to Exchange Currency

    How to avoid fees and get the best deal for your dollar.
RELATED TERMS
  1. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  2. Luhn Algorithm

    An algorithm used to validate a credit card number.
  3. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  4. Truncation

    The requirement mandated by the FTC for merchants to shorten ...
  5. Purchase Money Security Interest ...

    A security interest or claim on property that enables a lender ...
  6. Jamming

    A scam perpetrated by bogus credit repair firms that involves ...
RELATED FAQS
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  3. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>
  4. What were the primary financial crimes involved in the ZZZZ Best case?

    ZZZZ Best was a company started by Barry Jay Minkow that claimed to be a carpet cleaning business. In fact, it was a Ponzi ... Read Full Answer >>
  5. Can a creditor sue me for a delinquent account?

    If a credit card account becomes delinquent, the creditor can sue the debtor for the balance as soon as the delinquency occurs. ... Read Full Answer >>
  6. How do I transfer my credit card history from one country to another?

    It is currently not possible to transfer your credit history to another country if you relocate. The credit metrics used ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!