Arizona Consumers Council

Just last month, new rules that protect consumers who use credit cards went into effect.   While the rules in Credit Card Accountability and Disclosure Act mean that credit card users are generally better than they were before, credit card users won’t get any relief from long, complex disclosure statements:  the new rules are still complicated and riddled with limitations.  And, many expect banks and credit card issuers to impose new fees and bring back old ones.  Not surprisingly a recent survey found that while many credit card users are aware that new rules apply to credit card companies, most don’t know much about the details of these rules, and some believe that the rules provide more protections than they actually do. 

What the rules do provide:

• Your credit card company must provide 45 days notice before it:
  • Increases your interest rate
  • Changes certain fees (such as annual fees, cash advance fees or late fees)
  • Makes other significant changes to the terms of your credit card
• Your credit card company must tell you how long it will take to pay off your balance if you make no more than the minimum payment.
• Your credit card company cannot increase interest rates the first year (subject to several important exceptions described below). 
• If your credit card company increases your interest rate, the increase applies only to new charges.
• You must tell your credit card company that you want to make “over the limit” charges; if you do, the company can charge you only one fee per billing cycle.  If you do not, charges that will take you over your limit may be declined.  If you do not choose to be allowed to make over the limit charges, and the bank allows one to go through, it cannot charge you a fee.  You can revoke this consent at any time.
• Credit card companies now face caps on fees for high-fee cards.  A company cannot charge more than 25% of a card’s limit for fees such as application or annual fees to the card itself. (But, watch out:  these fees can total more than 25% of the annual limit.  And, this limit does not apply to penalty fees, such as a penalty for late payment.
• New rules apply to billing and payments.  Credit card companies must mail your bill at least 21 days before it is due, must make your payment due the same day each month, must allow until 5 PM on the due date to pay, and must give you until the following business day to pay if your due date falls on a weekend or legal holiday.
• Credit card companies must apply your payments to highest interest balances first.  And, if you bought something on a deferred interest plan, the company may allow you to choose to apply extra amounts to the deferred interest item before other items.  Otherwise, for two billing cycles before the end of the deferred interest period, the credit card company must apply your entire payment to the deferred interest-rate balance first.
• Credit card companies cannot use double-cycle billing; they can only charge interest on balances in the current billing cycle. 
• A credit card company cannot apply penalty rates until you are 60 days late, and if you make payments on time for 6 months, your rate will revert to the original rate.
• Credit card companies will have to examine your ability to pay before they increase your credit limit or extend new credit to you.  They should take a closer look at your income, assets and other obligations before extending new credit.
• Finally, those under 21 will need to show that they can make payments or get a co-signer to open a credit account.  Those under 21 with credit cards that have co-signers will need to co-signers signature to increase their credit limits.
• Credit card companies DO NOT have to provide 45 days notice if they are raising fees under these conditions:
  • You have a variable rate card tied to an index, and the index increases.
  • The introductory rate expires, and the rate reverts to a higher rate that was disclosed to you at the time you got the card.  Promotional rates must last at least 6 months.
  • Your rate increases because you are in a workout agreement, but haven’t made required payments.
• Credit card companies also do not need to provide notice before they increase your minimum payment or before they close your account.

What the rules don’t provide:

Not surprisingly, given the complexity of these rules and the complicated lives we all lead, many consumers believe that the new rules offer protections that they don’t. For example, contrary to the expectations of many consumers, these rules don’t cap late fees or limit interest rates.  Nor do they keep a card issuer from hiking rates on one card because of payment history on another. 

What to watch out for:

Most industry observers expect these new rules to cost the credit card industry billions, and they expect new fees to be introduced, old ones to make a resurgence, and rates to increase (after the required notice is given).  Customers may see higher balance-transfer charges and increased fees for overseas transactions.  Credit card issuers may impose fees for services that had been free, such as requesting a year-end itemization, paper bills or extended warranties.  Customers may even see fees on accounts they don’t use!  Annual fees, which had been less prevalent, may make a comeback, and may increase. Some advocates are concerned that some credit card companies may simply rewrite their contracts to allow them to continue to charge high fees.

Credit card users may also see changes to reward programs.  Fees for such programs may increase, or benefits may decrease, or redemption periods may be shortened. 

How to avoid credit card trouble:

• Pay off your balances every month, or as quickly as possible.
• Avoid “no interest” deals.  Usually, if you can’t pay off the item in full before the due date, you’ll be charged retroactive interest on the entire amount you borrowed.
• Don’t agree to pay an “over-the-limit” fee.  Such a fee will probably only allow you to charge a relatively small amount over your limit; few credit card companies will authorise a charge that exceeds a credit limit by hundreds of dollars.
• Don’t be late.  Just one late payment can trigger a hefty fee and an interest rate increase.
• Think twice before you co-sign:  co-signing makes you liable for the debt too.  That liability could extend for the life of the credit card account.
• Limit your use of credit.
• Hold only one or two widely accepted credit cards.
• Consider a card from a credit union.  It may not have a rewards program, but its fees may be lower, and simpler to understand. 
• If you run into trouble, try to negotiate.

Resources:

• National Consumer Law Center
• Credit Card Nation
• Consumer Reports:  Advice on Paying Down Debt