Amidst a signing ceremony in the Rose Garden of the White House,
President Obama today signed into law a bill containing new rules
designed to restrict the ability of credit card companies to assess
surprise fees, raise rates unfairly, and otherwise make life more
difficult for the many American consumers who carry substantial credit
card debt. As designed, credit-related agreements will become more
transparent, and accountability will be increased considerably.
Titled the Credit Card Accountability, Responsibility, and
Disclosure (CARD) Act of 2009, the law is controversial for several
reasons. One reason is that an amendment was included that allows
people to bring concealed weapons into national parks. That will
undoubtedly be the subject of much commentary and lots of discussion in
the blogosphere. More to the point, though, banks are suggesting that
they will end up penalizing good customers that pay their balances in
full each month to try to make up for the lost fees and interest
resulting from the new law. Incidentally, the banks have traditionally
referred to these “good” customers as “deadbeats” because they generate
relatively little revenue for the banks compared with less
credit-worthy customer. It’s a bit early to determine to what degree
the card issuers are bluffing, of course.
As I understand them, some of the key points of the new law include:
- College borrowers - Colleges have long been a fertile breeding
ground for irresponsible borrowing (and lending), and the schools
themselves have often contributed to the problem due to incentives
provided them by the card companies. College-aged cardholders are now
required to demonstrate that they can re-pay their debt, or they must
have a parent or guardian co-sign. In other words, they should meet the
basic requirement that any lender should seek to establish before
parting with money. Furthermore, agreements between colleges and credit
card companies regarding marketing to these students must be fully
- Rate increases - Card companies will no longer be able to raise
rates on existing balances unless borrowers are 60 days late. If the
cardholder subsequently pays in a timely manner for six straight
months, the card issuer will be required to reduce the rate back to the
original level. The “universal default” concept has now been banned.
This describes the case where late payment on one card causes a different
card company to raise rates based on the new information that the
borrower is a higher risk than he or she had been. The terms agreed to
in first year contracts will also remain stable for the entire year.
- Notification - Consumers must now be notified at least 45 days in advance of a rate increase.
- Late fees - Bills must be sent at least 21 days before payment is
due. Also, no more deadlines in the middle of the day, weekend due date
traps, and due dates that vary month to month.
- Over-limit fees - Currently, consumers sometimes are hit with fees
for exceeding their balance because a charge is authorized which pushes
the balance above the limit, often without the card user realizing it.
The new default behavior will be for the given charge to be denied,
unless the cardholder expressly permits it.
- Payments applied to high-rate balances first - Consumers sometimes
have different interest rates for a given card, as in the case where a
balance transfer was made, or a short-term teaser rate was offered. The
standard has been to apply payments to the lower-rate balances. The new
law reverses that, such that payments are applied to the balances
associated with the higher rate.
For more detailed information, go to the source: White House website.
Fun facts about credit cards, prior to the new CARD legislation.