[Infowarrior] - New Credit Card Rules: What You Need to Know

[Richard Forno]

New Credit Card Rules: What You Need to Know
hanges in Interest Rates, Overdraft Fees, Late Payments

By LAURA ZACCARO
Feb. 16, 2010—

http://abcnews.go.com/print?id=9846423
Next week new credit card provisions from the 2009 Credit Card  
Accountability, Responsibility, and Disclosure Act (CARD) will take  
effect, making it easier for consumers to understand their credit card  
bills and how interest charges are determined.

The new rules will affect millions of consumers. The average person  
has five credit cards and the average household with at least one  
credit card has more than $10,000 in credit card debt, according to a  
2009 Nilson Report.

"Good Morning America" financial contributor Mellody Hobson explained  
what you should know about the credit card changes.


Web Only Tip: Overdraft Fees
Overdraft fees generated $25 billion to $38 billion for banks last  
year, Hobson said. Consumers can be automatically enrolled in  
overdraft protection, but with the new Credit CARD Act, customers must  
now specifically request it.

Should a customer enroll, overdraft fees can only be applied once  
during a billing cycle and the card company must let you know how much  
it will be, Hobson said.

The customer has the right to opt out of overdraft protection at any  
time. But these new rules only apply to debit cards and not to  
overdraft fees from checks or electronic transfers.

Hobson recommended that consumers never ask for the overdraft  
protection for debit cards and opt out of it for checking accounts.


Credit Card Changes
Two of the Credit CARD Act changes are already in place.

Consumers now have 21 days to send their payments in instead of 14 and  
credit card companies must give consumers 45 days notice if their  
terms change, instead of 15 days.

Although Hobson notes that one important exception to the 45-day  
notification rule is if your credit card company decides to reduce  
your credit limit  the company can do that without any warning.

Should this happen, Hobson said to call the company and ask for it to  
be reversed. If the company refuses, then pay any remaining balance as  
soon as possible since lowering your credit limit could affect your  
credit score.

On Feb. 22 another change will take effect that should help consumers  
better understand their credit card terms and debt, Hobson said.



New Credit Card Rules
Beginning on Monday, credit card bills must make clear how long it  
will take the consumer to pay off the balance and how much interest  
the consumer will pay if he or she only pays the minimum amount every  
month.

For example, if a consumer has $5,000 in credit card debt with a 14  
percent APR, the credit card company must disclose that it would take  
10 years to pay off the balance plus nearly $2,000 in interest fees if  
the consumer only paid the minimum balance every month.


Fee and Interest Rate Changes
After the Credit CARD Act was passed in May 2009, credit card  
companies pre-emptively raised certain fees and interest rates in  
order to replace the $50 billion in revenues they expected to lose,  
Hobson said.

In fact since June 2009, the top 12 banks and credit unions have  
increased their rates by approximately 23 percent, Hobson explained.

While the Credit CARD Act does not put a cap on increased interest  
rates, credit card companies must give customers 45 days notice on any  
change and they are not allowed to raise the current interest rate on  
consumers' existing debt, Hobson said.

However, there are a few exceptions. If a consumer's APR is a variable  
and tied to an index, then the interest rates on existing debt can be  
raised.

Additionally, if a consumer is more than 60 days late making a  
payment, then the credit card company can increase the interest rate.  
But if the consumer then makes on-time payments for the following six  
months, the company must roll back the interest rate to the previous  
level, Hobson said.

Also, consumers can no longer be charged an additional fee for paying  
over the phone, by an electronic transfer or by mail, Hobson said. An  
extra charge will only apply if the consumer uses live services to  
expedite a payment.

Although the Credit CARD Act now requires 45 days notification of  
account changes, Hobson said it is still the consumer's responsibility  
to monitor all of the terms of their credit card statement.


Web Only Tip: Universal Default
The practice of universal default is also banned for existing credit  
card balances, Hobson said. This is when a card user's interest rate  
is increased based upon payment records for unrelated accounts, such  
as utility bills.


Changes Affect College Students
The last thing a college student needs is more debt. A Sallie Mae  
study found that in 2008, college seniors with at least one credit  
card graduated with an average of $4,138 in credit card debt.

To protect young people from incurring debt the Credit CARD Act has  
made it more difficult for college students to get a credit card,  
Hobson said.

Credit card companies can no longer offer a card to someone under 21  
without a co-signer or proof of proper income, Hobson explained. Nor  
can the company increase the limit on the card unless both the co- 
signer and the student agree. Offering inducements to sign up for  
cards - such as free t-shirts or beach towels  on or near a campus  
are also banned.

Hobson recommends that if your child does need a card, to add him or  
her as an authorized user on your own credit card.

Being an authorized user will help teach them to live within their  
means and also help them build up their credit history and could  
improve their credit score if you make on-time payments, Hobson said.