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Credit Card Reform Act of 2009: Does it Help Consumers?
Many of the Credit Card Reform Act provisions go into effect February 2010 and may affect interest rates, penalties, fees, gift cards and underage card holders.

The much anticipated Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 became law on May 22, 2009; however, most of the provisions of the act do not become effective until February 22, 2010. Several important provisions of CARD are already in effect are impacting consumers and lenders. One important provision that took effect on August 20, 2009 was that credit card issuers must now give a minimum of 45 days notice to card holders before raising interest rates or making other significant changes in the terms of their credit agreement. This notice must also include a statement notifying the card holders that they may cancel their accounts. This important change allows consumers the ability to cancel their account before the interest rate increases. If they choose to cancel the account, they will still be responsible for the amount due; however, the interest rate will remain the same on the balance owed. With the same thought in mind to protect consumers, the Credit Card Act provides that credit card issuers must mail the billing statement at least 21 days prior to the due date of the payment. Furthermore, if there is a grace period, that period must now extend a full 21 days after the statement is mailed in order to allow consumers time to pay and save interest. This provision of the act also became effective on August 20, 2009.

The remaining provisions of the Credit Card Act will take effect beginning in February 2010. The provisions that consumers may be interested in the most are:

Interest Rates

Interest rates on existing balances will no longer be raised by Credit Card companies, except under certain circumstances:

- The consumer has not paid his or her minimum payment within 60 days of the date it was due. However, notice must be given of the interest rate increase and the increase will terminate within six months if minimum payments are received on time each month during that time.

- If you have a promotional interest rate, the company can raise the interest rate after the promotional period with proper notice. However, the promotional period must be at least six months in length.

- If you have a variable interest rate, the company can change the interest rate according to the terms of your agreement.

- On new accounts, the credit card company cannot change the interest rate during the first year unless it is under the instances above.

- Lessens the effect of universal default on existing balances.

In order to protect consumers from unfair practices regarding interest on balances, the act prohibits what is commonly called "double cycle billing." This happens when a credit card company uses the balance owed from a previous billing cycle to calculate the amount of interest to charge on the current billing cycle. Furthermore, when a consumer makes a payment in excess of the minimum payment due, the company will have to apply the amount of payment over the minimum payment required to the balance owed that has the highest interest rate. This will prevent credit card companies from manipulating the accounts in order to charge customers more interest.

Payments, Fees and Penalties

There are several changes that the Credit Card Act has made with regard to how companies treat payments. Also, credit card companies will be required to take into consideration the consumer's ability to repay the debt before opening a new credit card or allowing the credit line to be increased. This will force credit card companies to accept some of the responsibility for the bad debt they carry in the future. Some of the major changes under the Credit Card Act with regard to payments are:

- Credit card companies must now keep the same due date each month. In the past, companies would change the due date causing many customers to accumulate late fees, thinking their due date was not past. Beginning next year, your due date must be on the same day each year.

- Companies must credit all payments received by 5:00 p.m. that day. Some companies set unrealistic times for payments, causing late fees to accumulate.

- If your payment is due on a day that mail is not delivered (such as a weekend or holiday), the creditor can no longer count the payment as late if the payment is received on the following business day.

- Credit card companies will no longer be able to charge fees for payments made online, by telephone, mail or other means. The only exception will be for an expedited payment made with the assistance of a customer service representative.

When the remainder of the Credit Card Act goes into effect, lenders will no longer be able to charge over-the-limit fees unless the card holder has authorized the over-the-limit transactions. In addition, the fee may only be charged once per billing cycle when the balance of the account exceeds the credit limit. If fees on an account equal 25 percent or more of the available credit balance, card issuers will no longer be able to deduct the fees from the available credit limit.

Persons Under 21 Years of Age

Finally, in an attempt to protect young consumers from generating large amounts of debt before learning how to properly budget, the act will contain provisions aimed directly at young consumers:

- Banks and card issuers may not send offers to persons under 21 unless they have consented to receiving such offers.

- Card issuers will not be able to offer freebies on campuses to get students to sign up.

- Before issuing a credit card to a person under 21, there must be a co-signer on the application who is over 21 years of age or the person must demonstrate his or her ability to repay the debt by independent means.

- Credit card companies will no longer be able to raise the credit limits for people under 21 without the written permission from the co-signer.

Gift Cards

Eliminates the practice of declining values and hidden fees for cards not used in a reasonable amount of time.  Requires all gift cards to have a five year life span.

Criticism of the Act

The Act has drawn criticism because it does not limit how hight interest rates can go.  Nor does it affect rate increases for future purchases or small business by addressing business and corporate credit cards.

Indeed many banks and credit providers have already raised their rates and fees, cut credit limits for customers and changed the terms of their card from fixed to variable rates in response to the passage of the act and in anticipation of its effective date in February, 2010. While, these actions by the credit card providers have resulted in a negative impact for the consumers it was designed to protect, the overall impression of the Credit Card Accountability Responsibility and Disclosure Act of 2009 has been favorable.

Keywords: credit card reform
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