New Credit Card Laws

On February 22, 2010, the Credit Card Accountability, Responsibility and Disclosure, or Credit CARD, Act of 2009 goes into effect. The legislation will improve consumer disclosures and end some questionable practices in the credit card industry. There Act contains eight major changes.

1. Retroactive rate increases

Issuers can't raise rates on an existing balance unless a promotional rate expired, the variable indexed rate increased or you paid late by 60 days or more. No longer will they be able to punish borrowers for late payments on unrelated accounts under the practice of universal default or due to "anytime, any reason" clauses.

2. More advance notice of rate hikes

Consumers get 45 days' notice before key contract changes take effect, including rate increases. Under the current Truth in Lending Act, cardholders only receive a 15-day heads up.

3. Fee restrictions

Cardholders will not face overlimit fees unless they elect to allow the creditor to approve overlimit transactions. Issuers can't charge more than one overlimit fee per billing cycle.

4. Restricts card issuance to students

Consumers under age 21 who can't prove an independent means of income or provide the signature of a co-signer aged 21 or older won't get approved for credit cards.

5. Ends double-cycle billing

The new law bans double-cycle billing, the practice of basing finance charges on the current and previous balance. Under this method, the issuer could charge interest on debt already paid off the previous month.

6. Fairer payment allocation

A close look at your card agreement will likely reveal a clause that explains that payments will be applied to lower-rate balances first. Not so anymore. The Credit CARD Act requires above-the-minimum payments to be applied first to the credit card balance with the highest interest rate.

7. More time to pay

Card companies must send statements 21 days before a payment is due. Current law requires a mere 14 days' notice.

8. Gift card protections

The legislation includes protections for gift cardholders. The new law prohibits gift cards from expiring for at least five years. Issuer cannot assess inactivity fees unless the card has gone unused for 12 months.