The world of credit cards can often be as scary as a horror film. In some cases, it seems that the credit card companies have taken on the role of the villain who preys on the innocent and unsuspecting debtor. While this is an extreme description of the relationship between credit card companies and their clients, it is true that many people have felt vulnerable to the powers of card issuers. In 2009, President Barack Obama signed the Credit CARD act into law. These sweeping reforms offer protections to card holders that are meant to level the playing field.
TUTORIAL: How To Manage Credit And Debt
1. Carpet Bombing College Campuses
Free pizza, baseball caps and t-shirts were examples of the tempting offers that lenders promised college students in exchange for signing up for a credit card. Many students took the bait and found themselves with overwhelming debt that lasted a lot longer than their free lunch. These days, credit card recruiters cannot offer freebies within 1,000 feet of the campus border. People under 21-years old cannot get a credit card unless they have an adult co-signer, or they can prove that they are credit worthy and have enough income on their own. At some schools, they must also pass out educational materials along with their offers so that students can make informed decisions.
2. Raising Your Existing Interest Rate
Surprise interest rate hikes are a thing of the past. The new regulations require credit card companies to give people at least 45-days notice of an interest rate change. They must also give you the option to cancel the card and they cannot increase the interest rate until after the first year of transactions. The law makes exceptions for this when you have late payments, you have a variable interest rate tied to an index that goes up or if your introductory interest rate has expired. (Paying these rates can impact your disposable income and your investment returns, check out Understanding Credit Card Interest.)
3. Setting Strange Deadlines
Time was literally money before the Credit CARD act. Credit card companies were previously allowed to set arbitrary deadlines for payments. Even if a consumer paid their bill on the proper day, it could have been considered late if it wasn't paid by the exact time the company set. For example, a payment could be due on Dec. 25 before 1 p.m. Now, the law states that payment times cannot be set before 5 p.m. or on holidays and weekends.
TUTORIAL: What To Know About Credit Cards
4. Using Double-Cycle Billing
A dirty little secret of the credit card industry, double-cycle billing is a way of calculating interest that includes both the balance of the current and previous billing period. This technique earns the credit card companies greater interest payments at the detriment of the consumer. The new regulations abolish this practice. (Avoid punishing late fees and keep your credit score intact with these 10 tips, check out Procrastinator's Guide To Bill Payment.)
5. Charging You to Pay
Some credit care companies squeezed additional money out of their customers by charging transaction fees when payment was submitted by mail, internet, telephone and other methods. Now, companies can only charge an additional fee if the customer asks for express payment to avoid being late.
6. Changing Your Due Date
The Credit CARD act requires credit card companies to maintain consistent due dates for payment. They must be on the same day every month, unless it falls on a weekend or holiday in which case it gets moved to the next business day. Also, the bill must be mailed at least 21 days in advance of the due date to notify the card holder of the balance owed for that billing cycle. In addition, consumers are entitled to a timeline of how long it will take to pay off the bill with minimum payments.
The Bottom Line
Changes in credit card regulations make it harder for credit card companies to take advantage of consumers and make it easier for card users to manage their debt.