This week, the Credit Card Accountability Responsibility and Disclosure Act of 2009 went into effect. President Obama signed the bill back in May 2009. Obama championed the law as an important step in protecting consumers from credit card companies, which often use not-so-transparent practices to hit consumers with fees and higher interest rates. Credit card companies have a history of innovation. In other words, they find creative ways around regulation to keep the money flooding in. Time will tell whether Obama's efforts will be successful. What follows are the highlights from the law changes.
There is no more universal default. Before, credit card companies could scan your credit report and raise your interest rate based on a late payment on another line of credit. Now, existing rates cannot be raised unless the account is 60 days past due, and if the borrower makes on time payments for six months, then the original rate is restored.
Promotional interest rates must last six months and interest rates on new credit card accounts must last one year. Card companies must furnish borrowers with 45 days notice for rate hikes.
There are no more over-the-limit fees. Instead, card companies should decline approval on purchases that would take you over your credit limit unless you opt-in to a program that allows you to go over your limit for a fee, and even then only one fee may be attached per billing cycle.
There are no more fees for making payments over the phone or on the internet. You may still face a fee if you have to speak to a live person to process your payment. Overall, service fees, such as activation and annual fees, may not add up to more than 25 percent of your credit limit in the first year.
Bills must be more forthright. They must print how many months it would take to pay off the balance if the borrower made just the minimum payment and how much to pay if the borrower wants to pay the balance within three years.
There will be less free stuff on college campuses. The bill prevents banks from handing out free gifts on or near college campuses or at college-related events. Cards may not be issued to anyone under 21 without a co-signer unless that individual can prove that he or she has enough income.
