CARD Act

The Credit Card Act & You

As of Monday February 22, 2010, banks are required to comply with additional provisions of the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) intended to protect consumers from unfair credit card billing practices. Following are some of the key changes or general requirements members should be aware of:

NOTIFICATION REQUIREMENTS: Card issuers will generally be required to give card holders 45-day notice of significant changes to the terms of their cards, including interest rate increases and changes to specified fees including annual or late fees. You also have the option to cancel a card before such changes take effect. Monthly credit card bills must have a consistent due date each month and each statement must include information indicating how long it will take you to pay off your balance if you make only minimum payments and what your payment needs to be to pay off the current balance within three years.

GRACE PERIOD ON INTEREST RATE INCREASES: An increase in your interest rate generally cannot happen during the first year after you open a fixed-rate card account. And, after the first 12 months, rate increases apply only to new charges. If your payment is more than 60 days, or you accepted a limited-time introductory rate, your rate may be increased within those 12 months for that specific card only.

FALLING, AND RISING, FEES & CHARGES: Over-the-limit fees and many other common charges will also be curtailed. If you make a transaction that takes you over your credit limit, your credit card company will no longer authorize the purchase, wherever you may be. There is a provision to allow card users to authorize a credit card issuer to allow such transactions, but it also restricts issuers to charging only one fee per user, per billing cycle. This will probably result in over-the-limit fees becoming a thing of the past. For more on unintended consequences, click here.

Also, credit card issuers can only apply interest charges on balances in the current billing cycle. Other fees like annual or application fees cannot total more than 25 percent of the initial credit limit. Fees cannot be applied to the method card users use to pay their bills. Foreign transaction fees are not affected.

STUDENT CARDS: To open a credit card account, people under the age of 21 will need either a qualified co-signer, or evidence they have a sufficient income source to meet monthly payments. Card companies can no longer market cards on college campuses.

These are some of the major changes, so take a close look at your cards today and compare with CAHPCU Visa cards. We think you’ll find our cards offer you the best value and most stable rates around.

Unintended Consequences of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act

Major provisions of the CARD Act took effect on February 22, 2010. Many of these provisions should be beneficial for credit card users, but may result in some unintended consequences. For a summary of the key changes that took effect, click here.

Following is a overview of some possible, or already implemented, unintended consequences of the CARD Act:

Since card issuers are unable to raise interest rates on new accounts for twelve months moving forward, many raised the advertised annual percentage rate (APR) before the February deadline. This often had no clear correlation to the credit history of the card holder.
People under 21 will find it harder to build up their credit score. If they do not have a job with enough income, they must get an adult to co-sign. This may limit many college age adults’ ability to build a positive credit history; this in turn could result in limited future opportunities due to higher interest rates offered when they are ready to apply for their first home or car loan.
Can you say new fees? Many banks are introducing more cards with annual fees, increasing existing fees, and putting new fees on accounts to make up for lost revenue streams now restricted by the CARD Act. Many institutions are also likely to limit or eliminate over limit fees resulting in consumers being denied more frequently at the point of purchase.
You will see fewer offers for fixed-rate credit cards. Many have already switched to variable rates, since the CARD Act allows APR increases in variable rate cards based upon the index used to on calculate that variable rate.
Increased minimum payments may also surprise many consumers because the amount above the minimum monthly payment must be applied to the balance with the highest APR. Some issuers have already raised the minimum payment to 5% for some cardholders. That can have a significant impact on a household budget.
Look for a decrease in the amount of credit cards with rewards or cash rebates, modifications to how fast rewards can be earned.
Fewer independent stores or associations offering credit cards. Providing proof of income when applying for a credit card will make it harder for consumers to instantly qualify for the card. This may also impact retail marketing efforts of the 10-15% discount on a purchase when you sign up for a store's credit card with a resulting impact on building revenue.

Hopefully this will provide consumers with a better understanding of their finances and create more transparency into the workings of the big banks. Just remember, CAHPCU has always prided itself on being upfront and steadfast in our commitments to members. And unlike many of those credit card companies and big banks, we have always tried to treat our membership fairly. Our credit card rates are now even more competitive. In fact, they have not changed in over 10 years and have no annual fee. So take a close look at your next statements and compare your other cards to ours. It could save you a lot.

Remember, credit is a privilege and no matter how much regulation is in place everyone should understand how they can manage their financial well-being. CAHPCU also offers a free financial fitness program through BALANCE that any member can use to help build sound financial habits. Click here to learn more.