On May 22, 2009, President Obama signed into law, the Credit Cardholders’ Bill of Rights Act of 2009. This new law seeks to curb some of the credit card industry’s most abusive and deceptive lending practices. If you use a credit card, you have probably been battered and abused by a credit card company in some form or fashion. Your interest rate may have suddenly increased for some unexplained reason, or you may receive your bill and it seems the payment is due in a week or if your balance goes over the limit, you are hit with an outlandish over limit fee. The new law is a welcome addition for consumer protection. So, what is the new law and how will it affect the average American?
Key provisions – Most provisions of the new law will not take effect until July, 2010.
Prevents unfair increases in interest rates – Prohibits the increase of interest rates for the first year an account is open and requires that promotional rates last at least six months. Also, prohibits the arbitrary increase in interest rates because of “universal default,” which is the changing of rates based on a client’s payment history with other creditors.
Fairness in timing of card payments – Requires that credit card statements are mailed 21 days before the payment due date rather the current 14 days. Also, requires that payments in excess of the minimum payment, be first applied to the credit card charges with the highest interest rate.
Prohibits exorbitant fees – Prohibits the charging of over-limit fees, unless the cardholder elects to allow the issuer to complete over-limit transactions. The law prohibits the charging of a fee to pay a credit card debt by mail, telephone or electronic transfer, except for live services for making an expedited payment. Also protects against excessive fees on low-credit limit, high-fee credit cards.
Enhanced disclosures for card terms and conditions – Requires 45 days notice of interest rate, fee and finance charge increases. Also, requires full disclosure on billing statements of payment due dates, late payment penalties, and the time and total interest it will take to pay off the card balance if only the minimum monthly payments are made.
Enhanced safeguards for young people – Card issuers extending credit to consumers under age 21 must obtain an application that contains the signature of a parent, guardian or other individual over 21 who will take responsibility for the debt; or prove that the applicant has an independent means of repaying any credit extended. The law also increases the protections for university students against aggressive credit card marketing and limits prescreened offers of credit to young consumers.
Increased credit card industry oversight – Requires the Federal Reserve Board to review the credit card market, practices and the cost and availability of credit to consumers. Also requires that the Federal Trade Commission rulemaking to prevent deceptive marketing of free credit reports.
It has been estimated that the new law will cost the credit card industry $10 billion a year in lost interest and fees. As the industry tries to recoup this income, the result may be generally higher credit card interest rates, more restrictive credit for individuals with low credit scores and fewer credit card reward programs.
Looking ahead over the next 12 months, continue to reduce your number of credit cards and level of credit card debt. Be vigilant of any correspondence you receive from your credit card companies, as there may be changes in terms and conditions on your accounts. The new law is a giant step forward in consumer protection from credit card abuse and deceptive practices. However, the best protection for you and your family is prudent use of credit and vigilance regarding anything you sign.
1 For a Summary of the Act go to: www. maloney.house.gov. (This w Web site is provided as a courtesy and are not under the control of Financial Network Investment Corporation).
Michael G. Shinn, CFP, Registered Representative and Investment Adviser Representative of and securities and investment advisory services offered through Financial Network Investment Corporation, member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to shinnm@financialnetwork.com. © Michael G. Shinn 2009.
