Credit CARD Act: Phase One

One of the biggest reforms to the credit card industry goes into effect today, and while the changes may not improve your bottom line immediately, credit-savvy cardholders will appreciate the changes.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009, signed by President Obama in May, helps to prevent abuse by credit card companies. As reported by CBS News, the two changes that go into effect today:

  • Increase the notice period for interest rate changes from 15 to 45 days. This will give cardholders more time to protest rate hikes, or transfer balances to a different credit line.
  • More time to make a payment after receiving the credit card statement. Due dates have been extended from 14 days to 21 days, giving cardholders more time to pay before incurring a late fee.

Both of these changes, as well as changes scheduled to take effect in February, 2010, will give cardholders more options to control their debt before considering filing bankruptcy to discharge debt, while decreasing the profits that credit card companies make from interest, late fees and other assorted fees.

The changes coming next year will add more responsibility to the credit card companies, including:

  • Stricter qualifications to get a card for those under 21
  • More regulations of “Universal Default”, in which a missed payment on one line of credit can increase the interest rate on all
  • An “opt-in” to go over your credit line, leading to fewer over-limit fees
  • Card issuers must make the terms of the account available online
  • Payments made to an account with various interest rates (such as promotional, cash withdrawal, etc.) must be applied to the balance with the highest interest rate first, a change that will help cardholders pay down credit card debt more quickly

In signing the bill into law, President Obama emphasized the shared responsibility of holders and issuers of credit:

Credit card companies provide a valuable service; we don’t begrudge them turning a profit.  We just want to make sure that they do so while upholding basic standards of fairness, transparency, and accountability.  Just as we demand credit card users to act responsibly, we demand that credit card companies act responsibly, too.  And that’s not too much to ask.

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