At the end of last year, Americans' credit card debt reached almost
$1 trillion total, with the average card-holding household owing $10,679
(Nilson Report, April 2009). In the last 12 months, 34 million Americans
have made a late credit card payment and 18 million have missed a payment
entirely. (National Foundation for Credit Counseling, 2009 Financial Literacy
Survey, April 2009).
In an effort to ease the burden on struggling cardholders, the federal
government has passed the Credit Card Accountability Responsibility &
Disclosure Act of 2009. The law becomes effective next February and contains
numerous protections for cardholders, some of which are highlighted below.
No More Retroactive Interest Rate Hikes. Card issuers will no longer be
able to raise interest rates on existing balances unless you are more
than 60 days late on your account (i.e., no payment is received during
the 60-day period after the due date). Instead, rate hikes will only apply
to new purchases. Further, even if the rate is increased due to a late
payment, the issuer must reinstate the lower rate after the cardholder
has made six straight on-time monthly payments.
Payments Must Be Applied to Highest-Rate Balances First. Typically, card
issuers apply payments to the balance subject to the lowest interest rate,
thus increasing the total accrued interest and the time it takes to pay
off the entire balance. Once this law takes effect, the issuer must apply
any payments above the minimum to balances subject to the highest interest
rate, then the balance subject to the next highest, and so on down the line.
No Payment-Based Fee. Banks will no longer be able to charge a fee related
to the method of payment (i.e., no more fees for internet or telephone
Set Payment Due Dates and Longer Grace Periods. The new law requires that
the payment due date be the same day each month (or the next business
day if the due date falls on a weekend or holiday). In addition, the billing
statement must be mailed no later than 21 days before the payment is due,
which is one week longer than the current laws impose.
Universal Defaults Prohibited. Currently, issuers can raise interest rates
based on negative entries in a cardholder's credit report (i.e., if
the cardholder has made a late payment to a different credit card). Card
issuers will no longer be able to do so.
And finally, a Legal Report favorite:
Gift Certificates Shall Not Expire. Echoing California's law prohibiting
the expiration of gift cards (see The Legal Report, Vol. 2, and our blog
at www.Ajalatlaw.com), the new law prohibits the sale or issuance of gift
certificates, store gift cards, or pre-paid cards that are subject to
an expiration date and prohibits imposing dormancy fees, inactivity fees,
or service fees on them.
Be Ready! In anticipation of the new law, card issuers have been taking
steps to minimize the impact (i.e., raising interest rates, phasing out
low-rate balance transfers, etc.). So, shop around for the best deals
available now and keep an eye out for changes to your existing cards.