Credit Card Rules » 8 'gotchas' of the Credit CARD Act
Over the past year, the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or Credit CARD Act, has rolled out in three major stages. The last batch of reforms recently took effect Aug. 22. Among the numerous new protections for consumers: restrictions on interest rate increases, limits on penalty fees and more time to reject changes in terms.
Now that all of the provisions have taken effect, it's important to understand where the law falls short. The CARD Act doesn't put controls on every possible adjustment a card issuer might make to increase profitability or reduce risk. Some of the protections leave wiggle room for credit card issuers to raise rates and impose fees, and allow them to make certain changes quietly.
8 limitations of the Credit CARD Act
- Certain rate increases allowed during the first year.
- Rate hikes on future purchases can take effect quickly.
- Not every change in terms requires advance notice.
- You can't opt out of rate increases and certain changes.
- No cap on penalty interest rates.
- Rate reductions aren't guaranteed despite required evaluations.
- Inactivity can still trigger penalties.
- No cap on certain fees.
Certain rate increases allowed during the first year. In general, the CARD Act prohibits rate increases and other "significant changes" in terms during the first year after account opening. It also points to four exceptions where an increase would be allowed during the first year: if the credit card has a variable rate tied to an index and the index has increased, if the account is 60 days delinquent, if a hardship plan has ended or if the promotional rate has expired. Promotional rates must last for a period of at least six months. Translation: That great, low interest rate can still increase if you neglect to make payments on time during the first year or if the promotional period doesn't span a full 12 months.
Rate hikes on future purchases can take effect quickly. After the first year following an account opening, rate increases can be applied to future transactions with 45 days' advance notice of the change. The issuer can even apply the higher rate to new purchases charged during the 45-day period.
"After 14 days, the new rate will apply to further transactions. At the end of the 45-day period, the bank can begin charging the new rate for any balances you accrued after the 14th day after the bank sent the notice," states HelpWithMyBank.gov, a website operated by the Office of the Comptroller of the Currency.
In other words, piling on purchases during the 45-day period can prove to be an expensive move.
Not every change in terms requires advance notice. Rate increases on future transactions and changes to fees that are required to be disclosed at account opening in a table, along with increases to the required minimum payment, must be announced to the consumer at least 45 days in advance.
Other changes can take effect quietly. According to HelpWithMyBank.gov, "The bank does not have to provide you notice if it closes your account, suspends future credit privileges or reduces your credit line." Issuers do have to give a 45-day notice before imposing a penalty for going over a lowered credit limit.
For this reason, it's a good idea to read all correspondence and carefully inspect your statement for changes.