The CARD Act: What Congress Forgot To Fix

The Credit Card Accountability, Responsibility and Disclosure Act (CARD), already in partial use and scheduled to be applied to full effect in February 2010, will radically change the credit card game for both lenders and borrowers. The idea behind the law was to change bad bank behavior from merely immoral to illegal. But lest we think all ills were cured with one swipe of the presidential pen, let’s take a quick look at what the new actually does as well as some other things that Congress forgot to fix.

What the CARD Act of 2009 Fixed

  • The way credit card payments are applied to balances: Card companies traditionally applied payments to low interest rate balances (like teaser rates) first, keeping high rate balances (like cash advance rates) on the books as long as possible. After February 10th, 2010, that’s reversed: high rate balances get paid off first.
  • Retroactive Rate Increases: Card issuers could essentially raise the rate you pay at any time for any reason, including being delinquent on a totally unrelated credit account. After the new law goes into effect, they can still raise your rates, but unless you’re 60 days delinquent, the new higher rate will only apply to charges made after the rate hike, not to old balances. (That’s why so many issuers are raising rates now, before the new law goes into effect.) And they no longer will be able to raise the rate on one account because you’re delinquent with another issuer, a practice known as universal default.
  • Changing Terms: Now credit card companies can change anything in your agreement: the rates you pay, their rewards programs and other terms any time they like with no notice. When the new law goes into effect, they have to provide 45 days notice.
  • Over the Limit Fees: Now card issuers can allow you to keep charging once you’re over your limit, and charge a hefty fee with every purchase. Those fees, typically around 40 bucks, are then added to your balance and you pay interest on them. After the new law goes into effect, you’ll have to actually “opt in” to accept this kind of treatment. In other words, you’ll have to physically approve of being charged a fee for going over the limit, versus simply having your card rejected.
  • Age Requirement: Now you can get a credit card at age 18. When the new law kicks in you’ll have to be 21. If you’re under 21 you can still get a card with a co-signer or if you can prove that you make sufficient income to pay your bills.

What the CARD Act of 2009 Didn’t Fix

  • Interest Rates: even after the new law goes into full effect, an issuer can still hike your rates any time with 45 days notice; the higher rate will just apply to new balances. Also important: issuers can change fixed rates to variable. Many are already doing this because the new law requires that fixed rates on new accounts can’t be raised for a year. So many are eliminating the fixed rates now.
  • Rewards Programs: Issuers can still change your rewards programs and many have already started to do so. Some are reducing cash back percentages, others are increasing the number of points or miles required to earn rewards.
  • Fees: There’s no restriction on the amount issuers charge for fees like balance transfers and some issuers have already started to increase them.
  • Minimum Payments: The issuer can still change their minimums. Several banks, for example, recently raised their minimum payments from 2.5 to 5% of the balance.
  • Closing Account/Reducing Available Credit: Your card issuer will still be able to close your account and/or reduce your available credit.

Bottom line? While the CARD ACT did fix some important problems with the way card issuers treat their customers, plastic will forever be fraught with peril. So while the law may be changing, the best way to manage credit remains the same: use it sparingly, pay it off in a timely fashion, pay attention to notices regarding changes in your account, and if you don’t like the way you’re treated, speak up and move on.

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