The Credit CARD (Credit Card Accountability, Responsibility, and Disclosure) Act of 2009 was signed into law on May 22, 2009, and took effect on in it’s entirety on Feb 22, 2010. It attempts to change some of the more unpopular policies used by credit card companies. Credit card issuers have been generating a substantial portion of their revenue in recent years not from the interest they charge, but from the myriad fees they charge consumers. There are many of these, and some have been used for a long time, such as monthly fees. People expect to pay such charges, and if they don’t like them, they can use one of the many cards without monthly fees. There are some fees that you can not escape unless you are very careful, however.
One of the most insidious fees in this category are ones that card holders are charged for going over their credit limit. In days gone by a charge would simply be denied if the card holder attempted to charge an item that put them over their credit limit. Those days are gone. IN the guise of convenience, card holders realized that they were overlooking a potentially highly profitable revenue stream.
Once the decision had been made to implement such fees, the card issuers jumped aboard the bandwagon with a vengeance. According to the 2008 Consumer Action credit card survey, 95% of all consumers report that their credit card has an over the limit fee, although that will doubtlessly change with the enactment of the new law. The average fee is around $29.00 and can be charged on a per occurrence basis, although some issuers charge only one fee for exceeding the limit.
Pity the card user that heads to the mall for a bit of shopping, absentmindedly forgetting that their credit card is close to the limit (going to the mall with maxed out credit cards is a subject for another day). They could easily rack up hundreds of dollars in new fees for exceeding their credit limit. Remember, those fees are charged per occurrence.
So, if you went to Macy’s for example, and charged $127.00, but only had $125 left on your card’s available balance, you would be issued a $30 fee on top of the $127.00. Then you went to J.C Penny and charged another $68.00. Again, you would be hit with the $30. All that shopping made you hungry, so you head to the food court for a spot o’ lunch. After eating $7.50 worth of Chinese food, your credit card balance would increase by $37.50; $7.50 for the lunch, and $30 for the fee. You head for home, purchases in tow, having rang up a total of $202.50 in purchases and $90 in new fees.
In the good old days, you would have simply been informed by the friendly Macy’s employee that your credit card had been declined and that would have been that. You’d be a bit embarrassed, to the extent you can be embarrassed in front of someone you don’t even know, but would head home with your finances more or less intact.
One could easily suspect that the whole fee fiasco was a plot brewed up by the merchants and the lenders in order to extract every last penny from your wallet. After all, not only do you pay the bank hefty fees, but your purchases are not declined, leaving you deeper in debt, but in possession of some fine new clothes. The bank wins, the merchant wins (both at least temporarily) and you lose.
Congress has now stepped in to protect consumers from their own credit irresponsibility by enacting legislation ending over the limit fees. There is a catch however. You can still opt in to such fees. Why would anyone in their right mind opt in to an over the limit fee on their credit card? Great question!
It is because the credit card company gives you something back in return, in most cases a lower interest rate or modified annual fee structure. The new Credit CARD act allows companies to still charge over limit fees, but now consumers must opt into such plans, but consumers will usually have to be enticed into doing so, typically with the promise of lower fees elsewhere, or lower interest rates.
Something else that is prohibited by the new Credit CARD law is the once common practice of letting a monthly fee, or service charge trigger the over the limit fee, something that enraged more than one consumer. Credit card companies are now only allowed to charge a single over the limit fee per billing cycle, which is typically about 30 days.
Other Credit CARD Act Protections for Card Holders
Sudden Rate Increases Other new protections given by the Credit CARD act include the abolition of the common practice of suddenly increasing the card’s interest rate, even on previous balances. This practice is akin to the lender for your car loan suddenly deciding your interest rate of 7% is just too low, and raising it to 9%. Now that practice will be eliminated. Companies can still raise interest rates on your cards, but after a card is more than 12 months old, they can only do so on new balances, and must not charge a high interest rate for balances that are less than 60 days past due. The exception to this is if cards are variable rate cards that are tied to one of the many index interest rates, such as the prime rate or LIBOR. In that case, the interest rate can increase, but only on new purchases or cash advances, not existing ones.
Grace Periods and Notification When card holders significantly change the terms of your card agreement, they must now give you a 45 day written notice. The fact that they can change the terms of t contract at all continues to raise the ire of many consumers and advocacy organizations, but others consider it the price to be paid for such easy access to credit cards. Companies now have to give he consumers the option to cancel their cards before any rate increases take effect.
Timely Billing Delivery and Billing Cycles
The practice of mailing your bill only days before it is due must now come to an end as well. Going forward, credit card companies must mail bills to consumers at least 21 days before the due date. This should allow even the troubled U.S. Postal service to get them there on time. Consider that they will probably have to arrive on a weekday, because Saturday delivery will soon be going the way of the Dodo and Passenger Pigeon.
Unlike in days of yore, your credit card’s due date must be consistent. So, if your bill is due on the 26th of the month it will always be due on the 26th of the month. No more paying your bill on the 24th one month and being 2 days early, only to find you are a day late the following month when paying on the 24th, because this time the bill was due on the 23rd.
These protections will definitely help some consumers in these troubled economic times, but they have consumer advocates wondering if they go far enough. The best thing is to not use your credit card unless it is absolutely necessary. Sometimes you almost have to use a card, such as when traveling or purchasing things online. When your card carries a balance, pay it off every month. If you can’t to so, except under extenuating circumstances such as major car repairs, home repairs, or medical bills, try to modify your spending so that you can. That is the only way to get back at the credit card companies if you think their practices have been unfair.
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