Protections for Credit Card Holders

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Protections for Credit Card Holders

As a credit card holder, you now enjoy some consumer protections that you did not in years past. The Credit Card Act that passed in 2009 set down some protections for credit card holders.

Here are the main points:

Interest rate hikes

Credit card annual percentage rates (APRs) may rise only under limited conditions. These include when the cardholder makes a late payment, when a promotional rate ends, if the card has a variable rate, and when the cardholder defaults on or ends a temporary workout arrangement. Major changes require 45 days’ advance notice on the card company’s part.

Card issuers may not increase the interest rate on a new card during the first year except in the cases noted above. Those are exceptions.

Different interest rates

If your card has more than one balance and uses more than one interest rate, such as one for cash advances and one for regular purchases, any payments you make in excess of the minimum must go toward the balances with the highest rates first. Previously, excess payments went to the balances with the lowest rates.

Due dates

Card companies must mail your bill at least 21 days before it is due. The due date must be on the same date each month. Card companies must stick with 5 pm for the time of day when payments must be received. Deadlines falling on holidays or weekends must be due on the next business day.

Disclosures and minimum payments

Card issuers must disclose certain things on your monthly statement:

• The amount of interest and fees you’ve paid in the current year
• How long it will take to pay off your existing balance if you make only the minimum payments
• The monthly payment required to pay off the whole balance in 36 months
• The fee for late payments
• The due date for the next payment

Card issuers must also disclose their credit card agreements on the Internet.

Fees and billing

• Overlimit fees. The card company cannot automatically let your account go over the limit. In order to go over your credit limit, you must opt in to this arrangement.
• Late payments. For occasional late payments, late fees are capped at $25. If you are late more than once in a six-month period, the fees are allowed to rise.
• Double-cycle billing. This is no longer allowed. Double-cycle billing calculates interest by taking the average daily balance from the previous billing cycle and factoring it into the current one, thus using two billing cycles instead of one. The recent Credit Card Act bans this.

New protections for young adults

Credit card companies cannot issue cards to anyone under 21 unless those people have adult co-signers or they can provide proof of sufficient income to repay their balance.

Card companies must stay at least 1,000 feet from college campuses if they are offering free food or gifts to attract customers.

Subprime cards

Cards for those with bad credit may come with fees just for opening the cards. These fees are now limited.

Final caveat

These recent changes do not provide full protections to card owners. For example, business credit cards are not covered by the new law. Also, there is no maximum cap on interest rates. Inactivity fees are still allowed, and cash advance and balance transfer fees are not capped. These are ways that the credit card industry has gotten around the limitations imposed by the Credit Card Act. It therefore pays to read all credit card offers as well as your credit card agreement very carefully.