New credit card legislation recently signed into law by President Barack Obama will bring about sweeping changes in credit card policy. Many of the terms and conditions analyzed in our Credit Card exclusive will look substantially different once the Credit Card Accountability, Responsibility and Disclosure, or Credit CARD, Act takes effect in February 2010.
Using the same data points examined in our study, here's a look at how terms and conditions on credit cards will change.
Raising rates: Under the Credit CARD Act, issuers must give you 45 days' advance notice before any rate increase takes effect, as well as any other "significant" change in terms, such as fee increases. This section of the law goes into effect in August 2009. However, this notice requirement does not apply to rate hikes due to index movement, 60-day late payment, promotional rate expiration or failure or completion of a hardship agreement.
Variable-rate cardholders beware: An increase in the prime rate could push your rate higher, without any notice.
Issuers that increase the APR based on the cardholder's credit risk, market conditions or other factors also have to consider those same factors to lower the rate and must review accounts every six months to see if those factors have changed since the rate increase.
Any time, any reason; universal default; etc.: Card companies no longer will be able to raise rates on existing balances unless one of four exceptions applies: The consumer is 60 days or more past due, a promotional rate expired, the consumer failed or completed a workout plan, or the variable rate increased due to index movement. If a late payment triggered the rate jump, after six months of on-time payments the issuer must reinstate the lower rate.
This ban puts an end to bait-and-switch tactics. "Basically, the rate that you have when you make a purchase with your card is going to be the rate that's applied to that amount forever," says Emily Peters, a credit expert for San Francisco-based Credit.com. Rate increases not related to the four exceptions will only apply to future transactions, and not to any incurred before the rate increase took effect.
According to a recent White House news release, 44 percent of families carry a balance on their credit cards. That's a big chunk of consumers who stand to benefit from this one provision.
In the meantime, some credit card issuers may continue to jack up rates while they can. "I think it's not unrealistic to think that by the time this law is enacted that you could see average rates hovering around 15 percent," says Curtis Arnold, founder of CardRatings.com in North Little Rock, Ark.
As of June 25, 2009, the average variable rate on credit card offers was 10.8 percent, according to Bankrate's weekly survey of interest rates.
Average daily balance: In our survey, none of the issuers practiced double-cycle billing, a method of interest calculation based on the average daily balance for the current and previous billing cycle. The practice was banned under the new law.
Late fee: Penalty fees, including late fees, must be "reasonable" and "proportional to such omission or violation," according to the legalese of the Credit CARD Act. What's reasonable hasn't yet been specified, and federal regulators are expected to set standards for penalty fees after this section of the law goes into effect.
Consumers will receive their statements at least 21 days before the due date, up from the current requirement of 14 days, allowing them more time to pay and avoid late fees.
The law also sets some rules for due dates and requires that they fall on the same day each month, and if that happens to be when the issuer doesn't accept mailed payments, such as on holidays or weekends, then payments received the next business day can't trigger late fees. If card issuers change the mailing address for payments, they can't impose late fees if the adjustment caused a delay in crediting the payment.