Nine New Credit Card Protections
In May 2009, 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 went into effect in February 2010. Here are some of the important changes:
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#1: Advance Notice of Rate Increases
Credit card issuers are 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. (Union Plus Credit Card holders already had this protection.)
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 fall 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 in the months immediately following the increase to the penalty rate. The Union Plus Credit Card has been one of the few major credit cards already offering the ability to "earn back" the regular purchase rate to members. The difference is that Union Plus cardholders will earn back their regular rate after any six months of on time payments. (Union Plus cardholders will never get rate increases on existing purchase and cash rate balances due to late payments.)
#2: Double-Cycle Billing Banned
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
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 payments by wire transfer or online were eliminated, except for payments by phone with a live customer service representative.
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.
#4: Faster Payoffs
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
Billing statements must be mailed or delivered at least 21 days before the due date. (Union Plus cardholders already had this protection.)
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 are no longer allowed to use “floating due dates” that change from time to time.
#6: Subprime or “Fee Harvester” Credit Cards
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 are not able to issue a new card, or increase a cardholder’s credit limit, without considering the borrower’s ability to repay the debt.
#8: Payoff Timing Disclosures
Your statement now tells 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
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 is required, and their permission is 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 – are not 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.