CARD Act: New rules start Sunday
On Sunday, August 22, the third and final round of credit card reform rules kick into effect. Nice!
Here’s the back-story: In May 2009 President Obama signed the CARD (Credit Card Accountability, Responsibility and Disclosure) Act, mandating sweeping reforms of the credit card industry. This was a big deal because, up until then, the credit card companies were pretty much free to raise rates whenever they felt like it. And they could give credit cards to anyone, even teenagers who probably weren’t ready to handle them. (Perhaps you know some of this from personal experience?)
In February 2010, the major changes to the law went into effect (read my tips about it in Redbook), making it harder for companies to raise interest rates willy-nilly and for people under 21 to get cards unless they proved they had the resources to pay or could get an adult cosigner.
Now, on Sunday, the third and final part of the CARD Act goes into effect. The Federal Reserve has a handy overview about what this means for you, but here’s the gist:
- Credit cards can’t charge you for not using them. Say sayonara to “inactivity fees,” which are charges for not using your card. These will now be illegal.
- Better rules on fees and late payments. Under the new rules, late fees can’t go higher than $25 (before that fee was $39) unless you’ve been late recently. And they can’t charge a late fee that’s higher than the minimum payment. (So if your minimum payment is $10, they can’t slap you with a $20 late fee.)
- Credit card companies have to explain why they’re raising your rate. If your APR (Annual Percentage Rate) goes up, the credit card company must tell you why, and they have to evaluate that rate increase every six months.
Of course, none of this changes my advice about how you should use credit cards. They should be used as a convenience, to avoid carrying wads of cash, and for purchases you could afford to pay today, based on what’s in your checking account. And you should pay on-time, every time, to avoid hurting your credit score.
Have you noticed any changes from the CARD Act?