The New Credit Card Law: How Can We Benefit From It?

The new Credit CARD (Card Accountability, Responsibility and Disclosure) law was approved on May 22, 2009 and since then, modifications have been made to protect consumers and credit cardholders. In this post, let us discuss how consumers can benefit from the changes made:

1. Rules on Credit Card Fees. Credit card companies are now prohibited from imposing additional fees from their cardholders who want to send in payment through telephone banking or through the internet.

2. No Double-cycle Billing. In the past, some card issuers use the double-cycle method of billing where the card holder's rate of interest is based upon the current and previous balances. Under the new Credit Card Law, double-cycle has completely been eliminated.

3. High-rate debts are priority. In the past, payments posted are first applied to the balance with the lowest interest rate. With the new Credit Card Law, highest rate balances must be given priority when the cardholder submits payment.

4. Longer period on payment notices. With the old law, card companies are only required to send billing notifications at least 14 days before the due date of payment. Today, the payment notice period has been increased to give card holders a much longer time to pay off their balances without incurring the additional interest rate or late penalty charges.

5. Rules on Interest Rate Increases. The new Credit CARD Law has restricted the rules on imposing interest rate increases. If a credit card issuer plans to increase the interest rate, there should be an advance notice sent at least 45 days prior to the implementation of the changes.

In addition, credit card companies that are offering a lower rate or a zero interest rate as a promotional deal must provide at least 6 months of introductory period or longer. Regular interest rate can only be applied after the introductory period ends.

Another good thing about the new Credit CARD law is the abolition of the "universal default clause". In the past, creditors can impose interest rate increases on the account that the borrower falls behind payments with other creditors. Credit card companies are now prohibited to impose the "universal default clause".

If a credit card holder fails to submit his/her payment on time, he/she is still given a chance to catch up. However, if the delinquency lasts for 60 days or longer, that is only the time the credit card issuer can impose an increase on the current interest rate. Nevertheless, should the cardholder manage to catch up with his/her payments for the next six consecutive months, the original rate of interest must be restored.

These modifications are meant to protect consumers from the risk of bad credit. Still, it's best to remember that credit cards with variable interest rates are subject to change depending on the Prime Rate. Take note that the new Credit CARD law does not impose a cap limit on variable rate increases. That means your current variable APR can double or triple the initial rate if the Prime Rate inflates.

Copyright (c) 2010 Liz Roberts