Although the Credit Card Accountability, Responsibility and Disclosure Act, known as the CARD Act, was passed in 2009, and most of it took effect last year, a recent survey found that only half of all U.S. credit card holders are aware of the consumer rights and protections included in the law. If you are having trouble with credit card debt, you particularly need to know how the law affects you.
Here is a brief summary of some of the new rights and consumer protections included in the CARD Act. Keep in mind, however, that many of the new rules apply to credit cards but not debit cards.
No more ‘universal default’ hikes on interest rates
Before the CARD Act, missing a payment on one of your credit cards could send the interest rates skyrocketing on all of your credit card debt — even on the cards you were paying on time — under a rule called “universal default.” Now, if a credit card holder wants to raise your interest rate on an existing balance, it can only do so if:
- Your payment is 60 days late or more
- The account has a variable interest rate and the index rate changes
- A promotional interest rate expires
- A debt workout agreement ends
- The account has been open for more than a year and they give you 45 days’ advance notice
Your interest rate goes back down if you start paying on time
If your rate goes up because you’re 60 days or more late, the credit card company can’t keep the rate increase forever anymore. Now, if you make your payments on time for the next six billing cycles, the interest rate increase has to end.
No more $39 penalties for making late payments
Sky-high fees and penalties were making it impossible for some people to pay down their credit card debt. The CARD Act requires penalties to be reasonable and proportional — no more than $25 for the first late payment and $35 for others within the same six-month period. Also, the penalty can’t be higher than the amount of your minimum payment. Finally, there can only be one late-payment penalty per billing cycle.
Your payments are applied to the highest-interest debt first
Suppose you transferred a $500 balance from one card to another to take advantage of a low rate on balance transfers. Later, you charged another $100 at the higher interest rate. In the past, the company could apply your payments to the part of your balance with the lower interest rate, increasing your total interest. Now, companies must apply any payment above the minimum payment to your highest-rate debt first.
No more moving targets when it comes to due dates
Some credit card companies were confusing customers by changing the date payments were due from one month to the next, or setting an arbitrary time of day before which the payment had to be received. The CARD Act requires the due date to be the same each month, and you have until at least 5:00 p.m. on that day to pay. Also, they can’t charge you a late fee unless they delivered your billing statement at least 21 days in advance of the due date.
If your credit card company violates any of these rules, call them right away. You do have rights.
Source: Bankrate.com, “5 new rights for credit card users,” Leslie McFadden, March 28, 2011