Yesterday the Federal Reserve enacted new changes to credit card rules, aimed at protecting you, the consumer. I’ve had my problems with credit card companies in the past, and I’m happy to see an end to some of the predatory credit card practices.
So what do these new credit card rules mean to you? Let’s take a look.
Credit Card Due Dates
Credit card companies will now be required to give the customer the same due date every month. In the past, the due date could vary, resulting in customers being confused as to when to pay their bill. If the customer paid late (or early), interest rates were hiked and fees were charged.
What this means for you: There will be no more confusion about your credit card bill due date. Mark the date on the calendar, and pay your bill by that day every month.
Payments and Interest Rates
Sometimes your credit card balance will have different interest rates. You might incur different rates for cash advances and purchases. In the past, credit card companies would apply your payment to the balance with the lowest interest rate first. The result? It would take longer for you to pay off your card, and you would accrue more interest charges.
With the new rules, credit card companies will be required to apply any payment beyond your minimum payment to the balance with the highest interest rate first. Also, interest charged each month is limited to a single billing cycle. Gone are the days of double-cycle billing.
What this means for you: If you pay more than the minimum balance, you will be able to pay off your credit card balance and get out of debt faster.
Interest Rate Increases
Under the new rules, credit card companies will be limited in their ability to raise interest rates on current outstanding balances. They will also be prohibited from raising your interest rates in the first year a card is open, and when the credit card companies do raise your rates, they will be required to give you 45 days notice.
In some situations, the credit card company is not required to give you notice of interest rate increases. Those situations include when you have a variable interest rate, when you have an introductory rate that goes up after a set amount of time, and when you don’t make your payments.
What this means for you: In most cases (there are a few exceptions), you will be protected from interest rate increases on your current credit card balance. When the credit card company decides to raise the interest rate on your future charges, they must give you notice, so you can decide whether to accept or reject the increase. Keep in mind, if you reject the increase, the credit card company may close your account, and your minimum payment may increase.
Credit Card Fees
Like the new rules for overdraft protection programs in banks, credit card companies will not be able to charge you over-the-limit fees, unless you specifically opt-in. You will not be able to go over your credit limit, unless you say it’s OK. Credit card companies are also limited in the fees they can charge for subprime cards.
What this means for you: You will not be charged over-the-limit fees, unless you tell the credit card company you want to opt in. Bear in mind when you don’t opt in, if you try to make a purchase that will take you over your limit, your purchase will be declined.
If you have a high-fee card, the amount of fees in the first year cannot be more than 25% of your credit limit. This doesn’t apply to penalty fees.
Credit Cards for Young People
Credit card companies will be very restricted in their marketing on college campuses. Furthermore, applicants under the age of 21 will have to show they have the means to pay off their card, or they will not be able to obtain a credit card. The exception is if a parent (or other adult) co-signs the application.
If you are a cosigner on a credit card with your young adult child, the credit card company will not be able to increase the credit limit without your written approval.
What this means for you: You no longer have to worry about your 18 year old new college student being bombarded with free stuff in exchange for filling out a credit card application. The only young adults who will be able to obtain credit cards are those who actually have the money to pay the balance.
If you have a college student under age 21, you will have to co-sign if you want your student to carry a credit card.
The new credit card rules will go into effect on February 22, 2010.
What do you think? Are the new credit card rules a good thing?
Photo by Andres Rueda.
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i think these rules are great, and i hope they help people get out of debt and keep others from going into debt in the first place. i know getting my credit cards paid off felt great, and canceling all of them once i had them paid off felt even better. now i keep one store card and keep it paid off and i have no interest in credit cards what so ever. i would rather not spend money i don’t have.
Wasn’t there something about not being able to charge for payments via phone or internet as well?
This is huge, as one of my cards charges $11 for payments over the phone, and $7 for online payments. The only free way to pay is to mail them a check, which they try to make sure you don’t do by sending your statement a day or two before it’s due.
I think there was, but I didn’t see it on the official site, so I didn’t include it in this article. But yes, on a news site, I read that credit card companies couldn’t charge fees based on method of payment.
And wow, $11 for paying over the phone and $7 for online payments? That’s insane. I knew credit card companies charged fees, but I had no idea they were so high!
I hope this becomes applicable in India too.
Sorry, but these don’t go into effect until
Feb 22nd not yesterday.
Here is link to the Fed Reserve on this subject.
http://www.federalreserve.gov/.....drules.htm
and the same link is in the first line of this post also.
That’s what I said at the bottom of the article:
“The new credit card rules will go into effect on February 22, 2010.”
This is so useful, I had no idea such changes were even happening. I’m glad the consumers are being protected more, and appreciate you putting it all into language easy to understand! :)
Very informative article. We don’t carry credit card debt, but it is good to know that these companies are going to be held more accountable and not be able to do whatever they please to the consumer.
This is great news. I also saw Suze Orman talking about how Credit Unions can’t issue credit cards with an APR over 19% (I believe that was the #) so you might want to check into that if you are looking for a new card.
As for the rules of marketing to college kids – I wish that has been around when I was in school. Somehow I ended up with a 2k limit card while in college, it took me forever to pay off and I didn’t really understand the rules of credit cards.
I wish those rules had been around when I was 18, too, Kate. I got my first credit card the first week I was on campus…in exchange for a UCSD travel mug.
This is all great news! Personally, I never had a credit card in college. I’m sure I would have gotten myself in trouble if those kinds of temptations had been available. I’m glad they’re gone. I’m also glad that they are “standardizing” the due dates. It certainly makes it easier to make sure bills get paid on time.
I wrote a post about this too, called Top 10 Reasons to Love February 22, 2010. :-)
Good to know. Thanks for the heads up. I think it’s a good thing that they are cracking down on the credit card companies. It think the best part of the new law is that the statements and letters will be easier to read. These are ridiculous to get through right now!
About time! All these “new” rules have been in existence in western Europe for many many years… nothing new to the card companies.