In other words, the law prevents universal default on existing balances. No longer can your rate go up on a balance because of a late payment to another creditor, or a drop in your score.
Issuers will still be able to apply rate hikes to future balances -- for any reason -- with 45 days' advance notice. No such notice is required for the above exceptions.
4 reasons rates can rise
- A promotional rate expires.
- The index, such as the prime rate, rises.
- A workout or hardship agreement ends.
- A payment is 60 days or more late.
Required terms change notices must give customers the right to reject the new terms, or "opt out." Opting out closes the account, but can't constitute a default of the account or require immediate repayment of the balance. Issuers must provide a repayment method "no less beneficial" than either a payment plan that spans at least five years, or a new minimum payment percentage that is no more than twice the previous percentage.
Consumer-friendly payment allocationBefore the CARD Act, card providers could apply payments to multiple balances as they saw fit. For instance, if you had transferred a balance at a low promotional rate and also charged new purchases to the card, the company could first allocate payments over the minimum to the amount with the lowest interest rate, to maximize finance charges.
Now, issuers must apply payments over the minimum to the balance with the highest interest first, then to each successive balance until the payment is spent. If the consumer has a balance with a deferred interest plan, then the issuer must credit the whole payment over the minimum to that balance for the last two billing cycles before the promotional period ends.
Required account reviewsIf a card issuer increases a borrower's rate due to market conditions, credit risk or other reasons not exempt from notification, then the bank must perform an account review every six months to determine if the factors have changed in favor of a lower rate. The law does not specify the amount of the decrease if the consumer qualifies. This provision doesn't take effect until August 2010.
The end of double-cycle billingThe law generally prohibits double-cycle billing, a method of finance charge calculation that uses the average daily balance from the current and previous billing cycle when a customer revolves a balance. This means that borrowers who begin to revolve a balance will pay interest on the original amount charged, as opposed to the amount left over after the payment. For example, if someone charged $200 to a card with a zero balance and then made a payment of $150, the person would be charged interest on the whole $200, rather than the $50 remainder.
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