August 23, 2010
The Credit CARD Act: Final Provisions |
by: Robin Thompson
The final provisions of the Credit Card Act went into effect yesterday, August 22, and below are some of the key provisions that may be beneficial to you if you are working on eliminating any credit card debt.
1. Fees.
Late payment and penalty fees will be more reasonable under the new law—credit card companies will be barred from charging late fees in excess of $25 or more than your minimum payment. This is an improvement because the typical late and over-the-limit fee was $39 and the same fee was charged whether you were late with a $20 or $150 minimum payment.
In other words, penalty fees cannot exceed the dollar amount incurred by the consumer's violation that caused the fee. For example, if you are late making a $15 minimum payment, the fee cannot exceed $15. Or if you exceed your credit limit by $10, you cannot be charged an over-the-limit fee of more than $10.
Also, you will not face multiple penalty fees for a single late payment or other account violations.
The rule also eliminates inactivity fees—credit card companies can no longer charge fees for not using your card. This is a great advantage because many consumers were tempted to close their accounts when fees were assessed for inactivity. I want to reiterate that closing your account lowers your credit score.
Here is the fine print that you should be aware of concerning the new provisions written above:
a. Larger fees can be assessed for repeat offenders—credit card issuers can charge up to $35 if another violation of the same type occurs in the next six billing cycles. Issuers can charge more if they can prove that a higher fee is justified.
b. Instead of the inactivity fee, some issuers are now requiring you to charge a yearly minimum for purchases. If you do not, then they charge you an annual fee.
2. Interest Rates.
If the interest rate on your credit card has increased since January 1, 2009, the issuer must evaluate reasons for the increase. If appropriate, your rate will be reduced.
This rule could make a major impact if you were hit with higher interest rates despite having good credit or a decent payment history. However, the decision to restore your interest rate to a lower level depends on what the issuer views as “appropriate”. This decision affects their revenue and they may not be too eager to restore the original rate.
The issuer must also review your account every six months if you receive a rate increase. The review will assess certain factors like credit risk, payment history, and market conditions to determine if your rate should be reduced.
3. Gift Cards
Gift cards such as store, merchant, or cards for general use such as a Visa gift card will now have limits on expiration dates—the money on your gift card will be good for at least five years from the date the card was purchased. This amount of time also applies if you add money to the card.
If your gift card expires and there is unspent money, you can request a replacement card at no charge.
The law bans inactivity or service fees unless your card has been inactive for twelve months and the issuer has disclosed all fees on the packaging. If you have a card that was issued prior to April 1, 2010, the effective date for the disclosure requirement is January 31, 2011.
Late payment and penalty fees will be more reasonable under the new law—credit card companies will be barred from charging late fees in excess of $25 or more than your minimum payment. This is an improvement because the typical late and over-the-limit fee was $39 and the same fee was charged whether you were late with a $20 or $150 minimum payment.
In other words, penalty fees cannot exceed the dollar amount incurred by the consumer's violation that caused the fee. For example, if you are late making a $15 minimum payment, the fee cannot exceed $15. Or if you exceed your credit limit by $10, you cannot be charged an over-the-limit fee of more than $10.
Also, you will not face multiple penalty fees for a single late payment or other account violations.
The rule also eliminates inactivity fees—credit card companies can no longer charge fees for not using your card. This is a great advantage because many consumers were tempted to close their accounts when fees were assessed for inactivity. I want to reiterate that closing your account lowers your credit score.
Here is the fine print that you should be aware of concerning the new provisions written above:
a. Larger fees can be assessed for repeat offenders—credit card issuers can charge up to $35 if another violation of the same type occurs in the next six billing cycles. Issuers can charge more if they can prove that a higher fee is justified.
b. Instead of the inactivity fee, some issuers are now requiring you to charge a yearly minimum for purchases. If you do not, then they charge you an annual fee.
2. Interest Rates.
If the interest rate on your credit card has increased since January 1, 2009, the issuer must evaluate reasons for the increase. If appropriate, your rate will be reduced.
This rule could make a major impact if you were hit with higher interest rates despite having good credit or a decent payment history. However, the decision to restore your interest rate to a lower level depends on what the issuer views as “appropriate”. This decision affects their revenue and they may not be too eager to restore the original rate.
The issuer must also review your account every six months if you receive a rate increase. The review will assess certain factors like credit risk, payment history, and market conditions to determine if your rate should be reduced.
3. Gift Cards
Gift cards such as store, merchant, or cards for general use such as a Visa gift card will now have limits on expiration dates—the money on your gift card will be good for at least five years from the date the card was purchased. This amount of time also applies if you add money to the card.
If your gift card expires and there is unspent money, you can request a replacement card at no charge.
The law bans inactivity or service fees unless your card has been inactive for twelve months and the issuer has disclosed all fees on the packaging. If you have a card that was issued prior to April 1, 2010, the effective date for the disclosure requirement is January 31, 2011.
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