In 2009 Obama signed into law a new set of credit card rules that protect consumers from unfair and predatory practices undertaken by some credit card companies. While these changes took effect in 2010, many credit card holders don’t know or don’t understand the new rules. Below is a list of some of the changes and a description of how they impact you.
Interest Rate Increases: Credit card companies can only raise your interest rates on existing balances under certain circumstances, such as when a promotional period comes to an end or when you are late making payments. They can, however, raise rates on future balances as long as they give you 45 days’ notice. You have the right to opt out of changes like a rate increase or a new annual fee. If you opt out, you must close your account, but you have five years to pay off the balance.
Payment Deadlines: Credit card companies are required to provide a reasonable amount of time for you to pay your bill, giving you at least 21 days from when it was mailed. The deadline cannot be before 5 PM on the due date and companies cannot charge late fees if due dates fall on weekends or holidays.
Credit for College Students: The new law forbids credit card companies from giving cards to young adults unless they show proof of income or if their card is co-signed by a parent. It also restricts certain marketing activities near college campuses.
Paying Higher Interest Balances: Some customers carry different balances with different interest rates on one card. The standard industry practice was to apply any payment over the minimum amount to the lower interest balance, thus extending the time customers were paying the higher interest rate. The new law demands that the credit card apply those payments to the higher rate balance.
Double Cycle Billing: The regulations forbid the practice of charging interest on the previous month’s balance, a practice called double-cycle billing. Without that restriction, credit card companies could charge you interest even if you paid off your balance in full.
Universal Default: Interest rates cannot be increased on existing balances for that reason and they can only be increased on future balances if the customer is notified 45 days in advance.
Fee Restrictions: Customers must specifically approve any transactions that go over their limit and agree to the resulting fees. Late payment fees cannot exceed $25 unless the customer is late twice in a six-month period. Fees for subprime credit cards cannot go over 25% of the card’s credit limit for the first year.