The new credit card rules have been enforced with the aim to relieve consumers from the stress of dealing with sudden rise in interest rates, penalty charges and unscrupulous billing practices of credit card issuers. The reformed rules will help the consumers to manage their credit card bills comfortably and avoid going into default on their accounts. Some of them have already come into effect and close to providing desired results.
Credit card rules that have been implemented
The Federal Reserve Board, the National Credit Union Administration and the Office of Thrift Supervision have voted on the Credit Reform Bill. President Obama has signed the Bill transforming it into Credit Card Act and some of its provisions have already come into effect since 20th of August. There are various reformative measures incorporated in the Credit Card Act which will take effect at different times in 2009. Portions of the Credit Card Act, which was slated for a February 2010 implementation, might get implemented in December, 2009. The Members of the House of Financial Services Committee proposed these to be implemented faster since the major credit card companies are increasing the APR.
• Arbitrary increase in interest rate is stopped
From now on credit card companies have to follow certain restrictions on arbitrary increase in interest rates on the existing balances of the card holders. The banks have to wait for 60 days from the date of last payment before they can charge any kind of late penalty, in case the debtor is unable to pay the debt on time. The late penalty in the form of increased rate of interest could only be charged after the completion of 60 days. Hence, this increases the time period for the debtors to arrange for the minimum payment to be made on a credit card debt.
• 45 days notice before changing contract terms
The credit card (cc) companies have to give the card holders a notice 45 days ahead of making any kind of changes to the existing contract. The cc companies must also mail the bills 21 days prior to the due date of payment. Previously, the creditors were required to send a notice of alteration to the debtors 30 days ahead of making the changes and mail the bills 14 days prior to the due date. But after the implementation of the new law, this time period has increased making it beneficial to the card holders.
• Consumers have the right to accept or reject changes
The consumers will have the right to accept or reject the changes in the contract made by the creditor. However, if they reject it, they must pay the debt amount with the same rate of interest within 5 years and the minimum payment might increase. So, on one hand the debtors have the right to take decisions on how to repay the debt, while on the other hand this might end up in increasing the minimum payment for them. Moreover, the new rule states that the minimum balance cannot be increased more than 50%. Now if the time frame is not sufficient for the debtor to repay the amount, then it will depend on the creditor to increase the time frame. Hence, before canceling any changes you should keep in mind this condition associated to the rule.
• Time limit for payment has increased
The time by which the payment should reach the credit card company has also been changed. In accordance with the new rule, if you pay the bill by 5 o’ clock on the due date, it will be considered as payment on time. No creditor is allowed to charge any late fee if the money reaches by 5. Hence, you do not have a stiff morning deadline to follow while making payment.
• Equal distribution of payment on balances
Whenever there is an additional payment along with your minimum payment, that extra amount will go to the highest interest rate account. Earlier banks used the extra money for lowest interest account. This practice increased the time span to get rid of the debts for the card holders, since in none of the accounts the balanced turned 0 quickly.
Rules to be implemented by December 1, 2010
The second phase is a mixed bag of rules going to be implemented by December 1, 2009. These rules again bring some good and some not so good news for the consumers and the credit providers.
• Credit limit restricted for people below 21 years of age
Anyone below 21 years of age will have to struggle to get a credit card. You must have a cosigner while applying for a card. Even after you have one, the credit limit will be restricted. However, if you are a student with a considerable amount of income, then you can submit a proof of your income to exempt yourself from the purview of this rule.
• No increase in interest rate in first year
From December 1, 2009 onwards, credit card providers will not be entitled to increase the interest rates in the first year. There might be an exception to this rule, if any such condition is mentioned in the contract earlier.
• Notice before increasing rate on future purchase
Credit card providers will have to give more time to the card holders before they can raise the interest rate on any kind of purchase the holder makes in future.
Will life be a little easier after the implementation of all the credit card reform rules is complete? I suppose it will be easier with the curbing of rising interest rates, with the increased time period for late payments and with all the other advantages the Bill is offering. So, now let us look forward to the positive changes that will be brought by these reforms in our lives.