SUMMARY OF CHANGES RESULTING FROM THE PASSAGE OF THE CREDIT CARD ACT OF 2009

AVAILABILITY OF CREDIT TO STUDENTS

Prior

  • Students were able to obtain a credit card(s) without need of:
  • Prior credit history
  • Employment
  • Parent or Guardian’s co-signature
  • Issuers were free to market to college students via prescreened credit card offers
  • Issuers offered free gifts at tabling events on and near campus to entice students to sign up for a credit card.

Present

  • Young adults under the age of 21 must now:
  • Prove they have sufficient independent income to repay their debt or
  • Have a parent or guardian’s co-signature before they will be granted a credit card
  • If under age 21, prescreened credit card offers may not be mailed to a student unless they’ve opted in with the credit reporting agencies to receive such offers.
  • Issuers are no longer able to offer gifts and food to entice students to apply for a credit card on or near campus or at a university sponsored event.

APR’s Prior

  • Variable rate APRs could change without notice when the index changed.
  • Fixed rate APRs could also change at any time for any reason as long as 15 days written notice was given.
  • Universal default clause was allowed. (Issuers were able to raise your APR if you were 30 days late to anyone.)

APR’s Present

  • Variable rate APRs can change without notice when the index changes
  • Otherwise, with few exceptions, APRs cannot be increased on an existing balance during the first year the account is open. Exceptions include:
  • At the conclusion of a promotional rate, which must last at least six months. The new “go to” rate must be disclosed with the initial offer.
  • If you are more than 60 days behind in payment. Note that if after 6 months you pay at least the MMP on time, the lower rate will return to your account.
  • If the rate had been temporarily lowered due to a hardship and the card user completes the terms of the workout plan or if the user fails to comply with the terms of the workout plan.
  • After the first year, the issuer can raise rates on new balances with 45 days notice. A new balance is considered to be the amount owed at the end of the 14th day after the date on which the issuer provides notice of the increase.
  • Issuers must also give you 45 days notice before changing certain fees such as annual fees, cash advance fees and late fees.
  • The issuer must advise you of your right to cancel the card before the rate increase takes effect.
  • If you choose to cancel the card and pay off the balance, you are entitled to pay it off at its original interest rate and you can pay it in monthly payments.

INTEREST CALCULATION

Prior

  • Two-cycle billing allowed

Present

  • Two-cycle billing no longer allowed
  • Most issuers use the Average Daily Balance method

PAYMENT ALLOCATION

Prior

  • When there were different APRs on an account (e.g., one applying to purchases and one applying to cash advances) any payment in excess of the MMP and finance charges were first credited to the balance with the lowest APR.
  • This practice made it impossible to pay down the account with the higher APR until the account with the low APR was paid in full. Therefore, the balance was carried forward month after month.

Present

  • If you have different APRs on your account (e.g., one applying to purchases and one applying to cash advances) any payment in excess of the MMP and finance charges must first be credited to the balance with the highest interest rate. Note that if you make only the MMP, your balance with the high APR will still not be paid down until the balance with the low APR is paid in full.

PENALTY RATES (aka DEFAULT RATES)

Prior

  • A high APR was assigned when a cardholder went over a credit limit, bounced a payment check, missed a payment or made a late payment.
  • Penalty rates were also applied according to the Universal Default Clause.

Present

  • During the first year, issuers cannot apply a penalty rate on an existing balance unless the cardholder is > 60 days behind in payment.
  • If after 6 months, the cardholder pays at least the MMP on time, the lower rate must be returned to the account.
  • After the first year, issuers are still able to apply a penalty rate for a variety of reasons as long as they give 45 days notice of the increase in APR which will apply only to new balances. A new balance is considered to be the amount owed on the end of the 14th day after the date on which the issuer provides notice of the increase.
  • Most issuers will apply a penalty rate if you make a late payment, bounce a check, miss a payment, go over your credit limit, or if you are considered to be a greater credit risk.
  • The Universal Default Clause is not allowed.

LOW INTEREST INTRODUCTORY RATES (aka PROMOTIONAL RATES)

Prior

  • Could last < 6 months

Present

  • Must last at least 6 months
  • Issuers must disclose the APR at end of initial 6 months, called the “go to” rate

LATE FEES

Prior

  • A late fee was applied when a payment was received after the due date.
  • Issuers were required to send your statement 14 days before the due date.
  • Most issuers charge a tiered fee based on the amount of the balance … range from $15 to $39.

Present

  • A late fee is applied when payment is received after the due date.
  • Most issuers charge a tiered fee based on the amount of the balance … ranging from $15 to $39.
  • As of August 22, 2010, issuers cannot charge a late fee of more than $25 unless one of the last six payments was late. Under those conditions the fee may be as high as $35.
  • There is also a clause that says an issuer can increase a late fee if it can show that the costs it incurs as a result of late payments justify a higher fee.
  • As of August 22, 2010, an issuer cannot charge a late fee that is greater than the MMP. So, if the MMP is $20, the late fee cannot be more than $20.
  • Issuers are required to send your statement no later than 21 days before the due date.
  • The payment due date, date a late fee will be charged and amount of the late fee must be disclosed in a conspicuous location on your statement.
  • Your due date should remain the same each month.
  • Cardholders who make a payment at a local branch will have their payment credited the same day. (Used to take an additional 24 hours before it was credited.)
  • If a due date falls on a weekend or holiday, your issuer cannot count your payment late if it’s received the next business day.
  • Your issuer cannot charge a late fee if your payment is received by 5:00 p.m. on the due date.

OVER-CREDIT LIMIT FEES

Prior

  • Issuers typically approved purchases that took an account over its credit limit.
  • Issuers then charged an over-limit fee every month until the account was brought under its credit limit.
  • This action typically sparked a default rate.
  • Typical fees were $29 to $39.
  • Some charged a tiered fee based on the amount of the balance.

Present

  • You must give permission to your issuer by opting in to authorize a purchase that puts you over your limit.
  • Issuers are free to decline such requests.
  • Issuers aren’t able to charge account holders more than one over-limit fee during each billing cycle and if you only go over the limit once, you cannot be charged over-limit fees more than three months in a row … even if your MMPs don’t bring your account balance back under the limit.
  • Issuers cannot charge an over-credit-limit fee if you go over the limit because of interest charges or fees.
  • Typical fees are $29 to $39.
  • Some issuers charge a tiered fee based on the amount of the balance.
  • As of August 22, 2010, if you exceed your credit limit by a small amount, you cannot be charged more than that amount. For example, if you go over your limit by $5, you cannot be charged an over-limit fee greater than $5.
  • After the first year, your issuer will likely increase your APR to a penalty rate if you go over your credit limit.

PAYMENT FEES

Prior

  • It was common for issuers to charge $10, $15, or more to make a payment by phone.
  • Some charged the same fee for an Internet payment.

Present

  • Payment fees are no longer allowed when making a phone payment using an automated system or when making a payment over the Internet.
  • Issuers can charge a payment fee if you are assisted by a banking professional to make a payment.

THE MINIMUM MONTHLY PAYMENT (MMP)

Prior

  • Issuers were not required to warn card users that making just the MMP would result in paying more in interest charges and would require longer to pay off one’s balance

Present

  • Issuers must display on monthly statements a warning indicating that making only the MMP will increase the amount of interest paid and time required to repay one’s balance
  • Repayment information to pay the balance in full if only the MMPs is made must include:
  • The number of months and
  • The total cost to the consumer, including interest and principal payments
  • This amount assumes no further charges are made on the account and on-time payments
  • Similar information to pay off the debt in 36 months is also required.
  • Issuers must also provide a toll-free number to obtain information on credit counseling and debt management services