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8 major benefits of new credit card law

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Highlights
  • A rate increase can't be applied to existing balances unless cardholder is delinquent.
  • Cardholders must be notified of a rate increase 45 days in advance, but there is no cap on rates.
  • Those under 21 can't apply for a credit card unless they have co-signer or the ability to pay.

On May 22, President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure, or Credit CARD, Act of 2009 into law. The legislation will improve consumer disclosures and end some egregious practices in the credit card industry but stops short of capping interest rates and fees. Most of the provisions go into effect Feb. 22, 2010, unless otherwise stated. Find more info on My Payment Savvy here

Here's an overview of the major changes the law will enact.

New credit card rules
  1. Retroactive rate increases.
  2. More advance notice of rate hikes.
  3. Fee restrictions.
  4. Restricts marketing and issuance to students.
  5. Ends double-cycle billing.
  6. Fairer payment allocation.
  7. More time to pay.
  8. Gift card protections.

1. Retroactive rate increases

Issuers can't raise rates on an existing balance unless a promotional rate expired, the variable indexed rate increased or you paid late by 60 days or more. No longer will they be able to punish borrowers for late payments on unrelated accounts under the practice of universal default or due to "anytime, any reason" clauses.

If the cardholder does trigger the default rate because of a 60-day delinquency, the bank must restore the lower rate once the cardholder demonstrates six months of consecutive on-time payments. This provision takes effect in August 2009.

In general, rates can't be raised in the first year after issuance, and promotional rates must last at least six months. Exceptions include expiration of a promotional rate, termination or completion of a workout plan, a change in the index rate or a 60-day delinquency.

Caveat: Issuers can raise rates at any time for any reason on new balances with 45 days' advance notice. Cardholders will still need to read correspondence from their creditors.

2. More advance notice of rate hikes

Consumers get 45 days' notice before key contract changes take effect, including rate increases. Under the current Truth in Lending Act, cardholders only receive a 15-day heads up. This change takes effect Aug. 20, 2009.

Caveat: This provision doesn't apply to credit limit changes. If your issuer slashes your limit, notification isn't necessary unless the reduction would trigger a penalty, such as an overlimit fee.

The new rules also don't cap interest rates. The increased rate can still be triple your existing APR.

3. Fee restrictions

Cardholders will not face overlimit fees unless they elect to allow the creditor to approve overlimit transactions. Issuers can't charge more than one overlimit fee per billing cycle.

In general, banks can't charge consumers a fee to pay their credit card debt, a cost some cardholders encounter for payments made by telephone or Internet. They can impose a fee to expedite a payment.

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Payments received by the due date -- or the next business day, if the bank doesn't accept mailed payments on the due date -- won't trigger a late fee. If the cardholder pays at a local branch, the payment must be credited the same day.

The new law limits fees on "fee-harvester" subprime cards as well. In the first year after issuance, nonpenalty fees cannot take up more than 25 percent of the initial credit limit.

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