Some provisions of the new credit card law won't mean much to people who pay their balances in full each month. After all, who cares about increased notification time of imminent rate hikes if you never incur finance charges?
The Credit Card Accountability, Responsibility and Disclosure Act, signed into law May 22, 2009, will have a greater impact on those who carry a balance month to month. About 46 percent of American families fall into that category, according to the Federal Reserve Board's Survey of Consumer Finances for 2007.
Here's a look at how the CARD Act impacts balance carriers.
Rate freeze after account openingA rate freeze applies during the first year after account opening, except under four circumstances. Expiration of a promotional rate is one such situation. Promotional rates, if offered, have to span at least six months, but after that can increase to the higher rate disclosed in the agreement.
A variable APR can rise in conjunction with upward movement in an index, such as the U.S. prime rate. This particular loophole affects most credit cards. Among the 50 largest issuers, 68 percent of cards offered have a variable rate, according to Greg McBride, senior financial analyst at Bankrate.
Law affects balance carriers
- Rate freeze after account opening.
- Protection for existing balances.
- Consumer-friendly payment allocation.
- Required account reviews.
- The end of double-cycle billing.
Rates can also go up during the first year if the increase is due to the end of a workout agreement or a payment past due by 60 days or more. Issuers must disclose the reason for the rate hike in the case of late payments, and explain that the lower APR will be reinstated in six months if the borrower makes the required minimum payments on time every month during that period.
Aside from these exceptions, cardholders will find that their initial rate won't get taken away for arbitrary reasons. Rates can't edge higher because of "market conditions," or a decrease in the consumer's credit score.
Protection for existing balancesCome Feb. 22, outstanding balances are protected from increases to rates, fees and finance charges, except under those four exemptions (see box on next page). The law defines "outstanding balance" as the amount owed at the end of the 14th day after notification of the terms change.