The Credit Card Reform Act of 2009 was enacted to protect consumers from such things as retroactive increases to their credit card interest rates, double-cycle billing and from being forced to pay excessive fees and penalties on their credit card bills.
The Credit Card Reform Act of 2009 is the first real major piece of federal consumer rights legislation in over thirty years. It represents deep reforms to the consumer credit card business and mandates new ways in which credit card companies must conduct business with their cardholders.
While the new law does not go into effect until February 1, 2010, the following changes to the law are definitely worth noting.
Increases On Credit Card Interest Rates
The new law mandates that credit card interest rates will not be allowed to increase on existing credit card balances unless the cardholder is more then sixty-days delinquent, the cardholder is already under a variable rate, or the credit card company’s promotional rate has expired.
Furthermore, any credit card promotional period must be at last least six-months long to prevent credit card companies from pulling a “bait-and-switch” on their new credit card customers. Offering one low rate to lure cardholders into accepting the card and then switching that rate without reasonable notice a few weeks or months later will no longer be legal.
The new reform also provides that interest rates on new credit card purchases are allowed to increase only after the cardholder has had the credit card for at least twelve months. After that time, the card company can increase the interest rate, so long as they provide the cardholder with at least forty-five days advanced written notice of the change.
The purpose behind requiring card companies to provide their cardholders with additional advanced notice before making major changes to their credit card terms is to allow the cardholder to have additional time to pay off the balance before the changes go into effect, cancel the card or execute a balance transfer to a new credit card company. Gone are the days when a credit card holder gets trapped into paying higher rates without first receiving reasonable prior notice of those changes.
Minimum Payments - New Limits on Fees and Penalties
Some experts say the most significant protection in the new law is that it prohibits excessive fees and penalties when consumers fail to make timely minimum payments on their monthly credit card bills. Under these conditions, if the cardholder fails to make at least the minimum payment for a period of two months, the credit card interest rate must go back to the original lower rate, rather then being hiked-up to a rate that is punitive and excessive for the cardholder.
Further, the new law dictates that all late fees and over-the-limit penalties must be both reasonable and proportionate to the cardholder’s actual violation of terms.
Credit card companies are also prohibited from using an earlier billing cycle when calculating the amount of interest to be charged for the current billing cycle. And finally, consumers who make phone and Internet payments to online credit card attendants are no longer required to pay a separate fee for using these services.
Payment Due Dates – Late Fees
Consumers have complained about arbitrary and unfair payment due dates that change without giving the cardholder prior warning. These practices have ended-up giving the consumer less time to pay the bill and a higher chance of incurring a late fee.
Under the new law, credit card companies will no longer be able to impose fines and penalties through their use of "gotcha" time-traps such as arbitrary cut-off times for payments to be mailed or received. The law now dictates that all deadlines that are set before 5 p.m. on the payment-due date will be per se illegal. Payments due at those times or on weekends, holidays or when the card issuer is closed for business will no longer subject the consumer to penalties or late fees.
Disclosure of Risk of Making Only Minimum Payments
Credit card companies must now disclose to their cardholders the exact consequences of making only “minimum payments” on their credit card balances. The credit card company will now be required to inform the consumer exactly how long it would take to pay off the balance should the consumer only make the required minimum monthly payments.
Credit card companies must also provide information on how much credit card customers must actually pay each month if they want to pay off their entire balance over the course of a few months. They are also required to post and fully disclose their credit card terms on line, along with any rules or special requirements concerning time limits or payment deadlines. This will provide consumers with badly needed clarity and transparency when it comes to the terms and conditions of using certain types of credit cards.
In conclusion, protecting the consumer from unfair business practices will better enable consumers to stay out of debt and live more responsibly. It will also enable consumers to make better choices when choosing a credit card that’s appropriate for their needs and lifestyle.
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