Nine New Credit Card Protections

In May, President Obama signed a new law that will make credit card terms more transparent and reduce or eliminate certain fees and arbitrary rate hikes.  Most of the provisions go into effect in February 2010. Here are some of the important changes:

Click here to download a printable fact sheet (PDF) about the Credit CARD Act of 2009.

#1: Advance Notice of Rate Increases

Credit card issuers will be required to provide clear notice of a rate increase – or any other major change in account terms -- at least 45 days before the effective date. (Became effective in August 2009. Union Plus Credit Card holders already have this protection.)

Beginning February 22, 2010, if your card issuer raises your interest rate, it can only apply the new rate to future purchases, not to your existing balance. The exceptions: an introductory rate for a limited period of time, you fell 60 days behind on your payments, or your rate was lowered in a temporary hardship program.

If you are sixty days late on your payment, your issuer can raise your rate on the current balance, but has to give you the chance to earn back your previous rate by making your minimum payments on time for six months. The Union Plus Credit Card has been one of the few major credit cards already offering this benefit to members. (And effective November 3, 2009, Union Plus cardholders will never get rate increases on existing purchase and cash rate balances due to late payments.)

#2: Double-Cycle Billing Banned - effective February 22, 2010

Two-cycle, or “double-cycle,” billing is banned. This complicated method for calculating interest allowed issuers to charge more interest when cardholders went from paying their balance in full, to carrying one. (The Union Plus Credit Card program never had double-cycle billing.)

#3: Fees Curbed - effective February 22, 2010

Over-the-Limit Fees: These fees can’t be charged unless you’ve “opted-in” to let your card issuer authorize purchases that put you over your limit. If an overlimit fee is charged, it will be restricted to no more than once per billing cycle – and three months in a row – as long as you don’t exceed your limit again. Union Plus cardholders are already protected against multiple over limit fee charges.

Payment Fees: Fees for accepting payment by mail, electronic transfer, telephone or any other method are prohibited - except when a service representative gets involved on the payment due date.

Late Fees: Late fees must be clearly disclosed on billing statements, along with any higher interest rate that may be charged if a payment is late.

Reasonable Fees: Penalty fees, such as late fees or over-the-limit fees, must be “reasonable and proportional to the violation” based on guidelines regulators develop. (Effective in August 2010.)

#4: Faster Payoffs - effective February 22, 2010

If your card carries multiple interest rates on different portions of the balance, any monthly payment amount in excess of the minimum payment will be applied to the balance with the highest interest rate first instead of the lowest-priced balance. This allows you to pay off higher rate balances even if you can’t pay off your entire balance.

#5: Statement Delivery and Due Dates

Effective August 20, 2009, billing statements must be mailed or delivered at least 21 days before the due date. (Union Plus cardholders already had this protection.)

Effective February 22, 2010: When the due date falls on a holiday, weekend, or other day when mail is not delivered or accepted, payments that arrive the next business day must be counted as “on time.” Any payment received by 5 p.m. must be credited the same day. Finally, issuers will no longer be allowed to use “floating due dates” that change from time to time.

#6: Subprime or “Fee Harvester” Credit Cards - effective February 22, 2010

These cards are often marketed to lower income consumers, or those with damaged credit. However, high upfront fees eat up most of the small initial credit limit. Under the new law, fees (not including penalty fees) cannot exceed 25% of the credit limit when the account is opened. (The Union Plus program never offered these types of cards.)

#7: New Approval Rules

Credit card issuers will not be able to issue a new card, or increase a cardholder’s credit limit, without considering the borrower’s ability to repay the debt. It remains to be seen how this will work, as most card issuers don’t currently verify employment or income.

#8: Payoff Timing Disclosures

Starting February 2010, your statement will tell you how long it will take, and how much it will cost, to repay your balance if you only make minimum payments. You’ll also see the payment amount needed to pay the balance off in three years.

#9: New Rules for Marketing Cards to Young People -- effective February 22, 2010

Before opening a credit card for someone under the age of 21, issuers must receive written information that demonstrates the borrower has the ability to repay the debt. Otherwise, a cosigner will be required, and their permission will be required before the credit line can be increased. Gifts – such as those T-shirts or tickets often given in exchange for filling out an application – will not be allowed in conjunction with marketing that takes place on or near campus, or at college events. (Union Plus offers credit card accounts only to individuals with an established credit history; there are no special student card accounts.)


Click here for a summary of the Credit CARD Act of 2009 (PDF).

Learn more about the Union Plus Credit Card and the unique Union SAFE benefits that help cardholders facing financial hardship due to job loss, disability, high hospital bills, layoff or disaster.