Know Your Credit Card Rights Provided By the Government

Knowledge is power. While this may be an ancient saying, somewhat diluted over time due to overuse, the core principle holds true. This is especially accurate when it comes to matters of money and finance. Laws and regulations can be somewhat confusing and difficult to comprehend. However, any time and aggravation spent learning your legal rights is more than compensated by the number of headaches you will avoid.

In the past, credit card companies held much more power over the average consumer than they do today. Laws passed in 2009 went a long way towards ensuring these companies do not practice predatory-type lending. Another important safeguard for consumers that have fallen behind on their bills is the Fair Debt Collection Practices Act. This act ensures that consumers receive as much information and consideration as possible when behind on payments.

There are several different areas dealing with credit cards that received the most changes under the Credit CARD Act of 2009. Thoroughly familiarizing yourself with this information can be the key to saving yourself money and aggravation in both the short and long term.

Interest

Since interest charges are the main source of profit for credit card companies, it is not surprising that some of the more important changes and information fall into this area.

• Rate Increases: In the past, credit card companies were only required to give 15 days notice to consumers before any prospective changes would take effect. Any research into possible alternatives, if the changes were not to the cardholder’s liking, would need to be completed within this time. Even if the consumer was able to find a suitable alternative, this left little time for the transition to take place.
  Under the new law, credit card companies are now required to provide consumers with 45 days before proposed changes can take effect. This provides quite a bit more time for the cardholder to shop around for a potential replacement.

• Existing Balances: Another important area that has been revised and clarified is changing the interest rate on existing balances. In most cases, credit card companies are not allowed to change the rate of charged interest on a balance that was present prior to any changes that were proposed. Even if the cardholder decides to stay with the company after the 45 day notification period, new rates will only apply to new charges.
  There are a few exceptions to this rule that should be understood. If the card was accepted under a low, introductory rate, when the rate reverts to the normal rate it would also apply to the existing balance. If the rate on the card is a declared variable rate, any increase based solely on this factor would also apply to existing balances.

• Payment Priority: A common tactic used by many credit card companies in the past was to take a payment made by the cardholder and apply it to purchases figured at the lowest interest rates first. Cash advances are a prime example of a type of charge that is assessed at a higher interest rate. By applying payments to charges set at lower interest rates first, it was possible for the company to earn more money in interest charges by having the higher rated ones on the books longer. This practice was outlawed in 2009. According to the CARD Act, payments made must be applied to higher-interest charges first. Only after these charges have been cleared will payments be applied to the lower rated ones.

Fees

The second biggest area that credit card companies make their profits is fees. Credit card companies are allowed to charge fees for different types of infractions. The two most common infractions that credit issuers charge fees for are late payments and going over the credit limit. As a result of previous practices, the rules governing these fees have also been revamped.

• Late fees: Under current laws, the charge assessed for a late payment is usually capped at $25. While this can still be considered a sizable amount, it could run even higher before the cap was instituted. However, it is important to note that higher fees can be charged if late payments are more frequent. If more than one late payment is made in a six month time period, this cap does not apply.

• Over-the-limit fees: In the past, if a purchase was made that exceeded the credit limit by a small amount, the charge was automatically accepted. By doing so, credit card companies were able to charge fees that, at times, could be quite pricey, Recent changes now mandate that instead of this being automatic, the cardholder must specifically “opt-in” to this. This change eliminated circumstances where a cardholder would be unaware of the possibility of this taking place and eliminating surprising fees. In addition, any fees that are assessed cannot exceed the amount that the cardholder exceeded their limit. If a cardholder went $10 over their limit, the fee can be no more than $10.

Payments

Since fees are such a consummate moneymaker for credit issuers, a common practice was to make changes to different aspects of payments in order to assess them. Many times these changes were unannounced, catching cardholders unawares.

• Payment times: Under current law, cardholders must be provided at least 21 days after the statement was sent or received to make payment. The law also abolished setting the time before 5pm on the due date as the mark of when the payment is considered late. Any time that a due date falls on a holiday, weekend or other time that the card company is closed will not be considered late if payment is received the following business day.

• Minimum Payments: It is a fact that paying only the minimum amount due each month will cause a balance to take years to be eliminated. Credit card companies are now required to disclose these consequences, usually with a breakdown of how long paying only the minimum will take on their current balance. Additionally, companies are required to disclose exactly how much is required each month in order to eliminate the debt in 36 months.

These are just a few examples of some of the most common areas of information to familiarize yourself with when using a credit card. If there is an area not mentioned here that you are unsure of, find out. There is no such thing as too much information when it comes to successfully governing your finances.

Photo: chadh