The Credit CARD Act is intended to help protect consumers from abusive fees, penalties, interest rate increases and other unwarranted changes in account terms. Companies will be required to make more disclosures and they face new limits on certain credit card practices. Learn more about some of these key provisions.
While the new law generally takes effect on February 22, 2010, some important changes already became effective on August 20, 2009. Some additional changes will go into effect on August 22, 2010.
Credit Cards
Changes That Became Effective on August 20, 2009
Prohibitions and restrictions on rate increases:
Card issuers must generally provide a 45-day notice of any rate increase or any other significant changes in account terms, up from 15 days.
In the same notice, card issuers must inform consumers of their right to cancel their card before the rate increase or account changes take effect. Consumers who decide to "opt out" of their card account will repay at the “old” (lower) rate, and they cannot be required to immediately repay the outstanding balance. Previously, card issuers offered opt out options at their discretion.
New Limits on fees and interest charges:
Monthly statements must be mailed or delivered at least 21 days before the payment due date, an increase from 14 days. This provides consumers more time to pay the bill before incurring late fees or additional interest charges if there is a grace period. This applies to all open-end credit, including credit cards and home equity lines of credit.
Changes Effective on February 22, 2010
In January 2010, the Federal Reserve Board issued a final rule for credit card companies that provide new protections for consumers. The rule is intended to ensure that consumers who use credit cards are treated fairly and it bans several harmful practices. The new rules will:
Protect consumers from unexpected increases in credit card interest rates, by generally prohibiting increases in a rate during the first year after an account is opened and increases in a rate that applies to an existing credit card balance;
Prohibit creditors from issuing a credit card to a consumer under age 21, unless the consumer has the proven ability to make the required payments or obtains the signature of a parent or other cosigner;
Require creditors to obtain a consumer’s consent before charging fees for transactions that exceed the credit limit;
Limit the high fees associated with subprime credit cards;
Prohibit creditors from allocating payments in ways that maximize interest charges.
After the first year of the account, the card issuer can raise a consumer’s interest rate, but the higher rate can only apply to new transactions and it cannot exceed the potential interest rate increase previously disclosed to the cardholder.
Also, card issuers can continue offering low introductory rates, but these initial rates must be disclosed in a clear and conspicuous manner and cannot increase until after the advertising period, which must be at least six months.
"What You Need to Know: New Credit Card Rules" explains key changes consumers can expect from their credit card companies as a result of the new rules. The Federal Reserve Board plans to release additional “What You Need to Know” information at the time of other major rulemakings.
Credit Reports
Every person is entitled to a free credit report every 12 months from each of the three nationwide credit reporting organizations – Equifax, Experian and TransUnion. AnnualCreditReport.com is the official site to help consumers obtain their free annual credit report.
Gift Cards and Pre-Paid Cards
The Credit CARD Act also includes safeguards for gift cards and other pre-paid cards that can be used at a variety of stores and service providers to make small-dollar purchases. Under this new law, gift cards and similar cards cannot expire within five years from the date they were activated, unless the expiration date is clearly disclosed. The law also prohibits an inactivity fee on gift cards in certain circumstances, such as there has been no transaction for at least 12 months.
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Changes That Became Effective on August 20, 2009
