Key Provisions of the New Credit Card Law

[babylonsister]

http://www.cqpolitics.com/wmspage.cfm?docID=news-000003124647

Key Provisions of the New Credit Card Law

These are the key provisions of the new credit card legislation signed into law today by President Obama.

THE WHITE HOUSE

Office of the Press Secretary

________________________________________________________________________________________________________

FOR IMMEDIATE RELEASE

May 22, 2009

FACT SHEET: REFORMS TO PROTECT AMERICAN CREDIT CARD HOLDERS

Bans Unfair Rate Increases: Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked.

• Bans Retroactive Rate Increases: Bans rate increases on existing balances due to “any time, any reason” or “universal default” and severely restricts retroactive rate increases due to late payment.

• First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.

Bans Unfair Fee Traps:

• Ends Late Fee Traps: Institutions will have to give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.

• Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do. The act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called “double-cycle” billing.

• Requires Opt-In to Over-Limit Fees: Consumers will find it easier to avoid over-limit fees because institutions will have to obtain a consumer’s permission to process transactions that would place the account over the limit.

• Restrains Unfair Sub-Prime Fees: Fees on subprime, low-limit credit cards will be substantially restricted.

• Limits Fees on Gift and Stored Value Cards: The act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.

Plain Sight /Plain Language Disclosures: Credit card contract terms will be disclosed in language that consumers can see and understand so they can avoid unnecessary costs and manage their finances.

• Plain Language in Plain Sight: Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers’ accounts afterwards. For example, pre-opening disclosures will highlight fees consumers may be charged and periodic statements will conspicuously display fees they have paid in the current month and the year to date as well as the reasons for those fees. These disclosures will help consumers make informed choices about using the right financial products and managing their own financial needs. Model disclosures will be updated regularly based on reviews of the market, empirical research, and testing with consumers to ensure that disclosures remain clear, useful, and relevant.

• Real Information about the Financial Consequences of Decisions: Issuers will be required to show the consequences to consumers of their credit decisions.

• Issuers will need to display on periodic statements how long it would take to pay off the existing balance – and the total interest cost – if the consumer paid only the minimum due.

• Issuers will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months.

Accountability: The act will help ensure accountability from both credit card issuers and regulators who are responsible for preventing unfair practices and enforcing protections.

• Public posting of credit card contracts: Today credit card contracts are usually available only in hard copy and not in plain language. Now issuers will be required to make contracts available on the Internet in a usable format. Regulators and consumer advocates will be better able to monitor changes in credit card terms and evaluate whether current disclosures and protections are adequate.

• Holds regulators accountable to enforce the law: Regulators will be required to report annually to the Congress on their enforcement of credit card protections

• Holds regulators accountable to keep protections current:

• Regulators will be required to request public input on trends in the credit card market and potential consumer protection issues on a biennial basis to determine what new regulations or disclosures might be needed.

• Regulators will be required either to update the applicable rules, or to publish findings if they deem further regulation unnecessary.

• Increases penalties: Card issuers that violate these new restrictions will face significantly higher penalties than under current law, which should make violations less likely in the first place.

Cleans Up Credit Card Practices For Young People at Universities. The act contains new protections for college students and young adults, including a requirement that card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students.

[county worker]

1. So what is an unfair rate increase? It is not defined anywhere.

What I consider unfair is probably legal.

We use to have laws against interest rates at loan shark levels. We use to deduct consumer interest paid on our tax returns.

I would like to see all current credit card balances be turned into straight amortized loans like a car loan that interest is not added each month to the balance and then everyone starts fresh with a new card or don't use them anymore.

[Statistical]

4. Interest is added each month on car loan....

Just because it is amortized doesn't change the way it works.

Both works exactly the same way.

A 9.99% car loan on 10K principle

and

A 9.99% cc with 10K balance

will accrue the same amount of interest in a month.

A car loan at 9.99% on 10K amortized over 60 payments is $214.50 per month. You will pay 2748 in interest on the $10K principle by the time the loan is paid off.

If you have a credit card with $10K balance and 9.99% APR and pay $24.50 per month you will pay it off in 60 months and pay $2748 in interest and $10K in principle (assuming no new charge & no late fees).


You can generate your own amortization table to pay off any amount of debt in amount of time (assuming you can make the payments).

The problem or risk w/ CC is it is very easy to "charge one more thing" and before you know it you have $50K at 30% interest which can still be amortized but would require a payment of $1300 per month for 10 years to pay off. Then you reach a point where your entire disposable income goes to paying credit card 75% or so in interest and 25% towards balance and then you are living off the card revolving the same $50K in balance and paying interest for life.

[msongs]

2. radio says the economic screwing can continue for another 9 months nt

[MercutioATC]

3. It addresses the three biggest problems.

1) It prohibits rate increases on existing balances.

2) It requires 21-day advance billing.

3) It applies payments to the highest rate first.


I think they could have come up with an absolute interest rate cap...say 30%...but it's damn good legislation even without it.

[Statistical]

5. I agree

#1 and #3 are huge for trying to pay down debt.

Sure it could be better (limits on rates, limits on variable rate rules, limits on fees) but #3 is a pet peeve of me. #1 is simply wrong.

If you extend someone credit at say 10% and they fuck up I have no problem with raising rates ON FUTURE purchases but to go back retroactively and say all that stuff you charged thinking it was at 10% (maybe $10K, $20K, $50K worth) is now 30% and the interest is more than you can pay so debt grows forever is simply wrong.

If you miss a payment or do something to cause a rate hike at least now (or 9 months from now) you can cut up the card and be confident that existing debt will remain the same rate until paid off.

[MercutioATC]

6. The worst part is that you don't even have to fuck up to have your rate raised.

You can do everything right and STILL see the rate on $10k of existing balance jump 10% or more.

Fixing that is HUGE.