CARD Legislation Goes Into Effect February 22, 2010

President Obama recently signed the CARD Act (Card Accountability, Responsibility, and Disclosure) Legislation which calls for better behavior on the part of credit card issuers. The Act will officially go into effect on February 22, 2010, and both the consumers and card issuers are bracing for some big changes.

As the name of the Act says, the federal government is looking to clean up some of the financial irresponsibility on the part of both the consumer and credit card companies that led to 2008’s worldwide economic crisis and ongoing credit card woes.

Among other changes, the CARD Act allows for more time to make bill payments, adequate notice to the card holder of any term changes, stricter eligibility requirements, fewer reward cards, and fewer penalty fees.  The Act also calls for fewer pre-approved applications sent to students and closer monitoring of campus marketing efforts.   In another major change, the Act requires a co-signer for any card applicant under 21, holding both parties responsible for delinquent payments.  Colleges and universities will be encouraged to develop stricter marketing policies and limit campus visits by the card companies.  They will also need to disclose how much money the school earned from major credit cards that carry the school’s logo.

Other major changes include:

• Limited interest rate hikes. Companies will be required to give consumers 45 days’ notice of  any substantial change to the interest rate.

• Longer payment time. Card holders will now have 21 days to make any payments.

• Highest interest balances paid first. Amounts over the monthly minimum will now be applied to lower-interest balances so that the higher balances can be paid off first.

• Disclosure about minimum payments. Card holders will be strongly encouraged to make their full payment, or as much of it, as possible.  The companies will be required to explain the consequences of paying only the lowest amount—for example, explaining how long it will take to pay off the balance and interest.

• Lower sub-prime fees and the end of double-billing. Sub-prime fees can quickly drain new card holders’ accounts.  Under the new law, the fee cannot be more than 25% of the available credit limit in the first year.  The law will also end double-billing, the practice of charging interest on debt that’s already been paid off in a previous month or billing cycle.

The Race to Raise Rates

Since the new law won’t go into effect until February, credit card companies have been scrambling to raise interest rates to cover their projected revenue losses.    In fact, most major card companies have no plans to make major changes to their dealings with customers until the law goes into effect, so customers are looking at an abrupt transition come February.  In some cases, a few of the card companies are basically gouging their interest rates past some already high limits in order to make up for the money they’ll be losing in just a few weeks.  These practices are another black eye for the already damaged credit industry, which has seen staggering losses in both customers and revenue since the economic nosedive.  According to the American Banking Association, the last-minute scramble is an effort for companies to make up some of the debt that they lost within the past year before the new stricter policies go into effect.  Though they empathize with consumers, these companies say that they are simply trying to keep their numbers steady and prepare themselves for the new changes that will affect the industry on all levels.

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This entry was posted on Thursday, February 4th, 2010 at 9:00 am and is filed under Credit Card News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.