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While Credit Card Reform is not the most exciting topic in my opinion, new regulations went into effect this week (February 22, 2010) to help protect consumers from deceptive practices. This is all part of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. The goal of this Credit Card Reform is to put an end to unfair and deceptive practices such as hidden fees and unfair rate hikes.

Credit card debt is a major issue in America. Close to 80% of Americans have a credit card and 44% of families carry a balance. The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008. (Source: Nilson Report, April 2009). And, on an annual basis, Americans pay approximately $15 billion in penalty fees!!!

The hope is that by becoming educated on the new reform and with significant increases in personal responsibility, individuals can get their credit problems in check and under control.

Here are the highlights from the credit card reform law:

No more unfair rate increases.

• Financial institutions will no longer be able to unfairly raise rates or increase rates retroactively.
• First year protection is required and rates must remain stable for the entire first year.
• Promotional rates can still be offered, but must last at least six months and details must be fully disclosed.

More time to pay bills and no more unfair fee traps.

• Card holders will receive a reasonable time, at least 21 days, to pay the monthly bill from time of mailing. Consistent due dates are mandated and can no longer changed monthly and no more weekend or mid-day deadlines.

Highest interest balances must be paid first.

• Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do.

Permission required to exceed limits.

• Institutions are now required to obtain a consumer’s permission to process transactions that place them over their account limit.

Credit card terms must now be accessible and easy to understand.

• Plain language must be used and terms must be in plain sight and explained up front before opening an account and clearly disclosed afterwards.

Changes to you credit card statements.

• Issuers must outline how long it would take to pay off the existing balance – and the total interest cost – if the consumer paid only the minimum due.
• Payment amount and total interest cost to pay off the existing balance in 36 months must also be displayed.

Offers protections for young adults and students.

• Banks can no longer give credit cards to people under the age of 21 without verifying their ability to pay or having a co-signer over the age of 21 on all credit card contracts.

I’m a firm believer in personal responsibility! Each person must become responsible for their own actions and must take measures to get themselves out of unfortunate financial situations. Don’t buy something if you can’t afford to pay it off when the bill comes due. Read the fine print and always know and understand what you are getting into.  Financial institutions are already getting creative with new fees that are not banned by the Credit Card Reform Act … so BEWARE!

Sources:

For more details you can read the full government fact sheet on the Credit Card Reform Act.

For additional mind-blowing credit card facts you can go to CreditCards.com.