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| New credit card law sets out to protect consumers better |
| Published Wednesday, March 17, 2010 7:00 am |
A new credit card law, which fully went into effect on February 22, 2010, is designed to end unfair credit card practices for consumers without shutting off credit opportunities.
Here are 10 protections from the Credit Card Accountability, Responsibility and Disclosure Act:
1. The Law Ends Surprise Rate Increases. Credit card companies and other institutions must provide at least 45 days written notice to cardholders of an increase in the annual percentage rate. Cardholders will also no longer be blindsided by high rate hikes on existing balances. The new law prohibits such actions for "any reason."
2. First-Year Safeguards Are Provided. The terms of the credit agreement must be spelled out clearly and generally remain constant for the entire first year. Although companies can continue to offer promotional rates to new or existing accounts, these enticements must remain in effect for at least six months.
3. The Law Ends Late Fee "Traps." Institutions must give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
4. "Over-the-Limit" Fees Are Only Allowed with Permission. When credit thresholds are exceeded, companies must obtain a cardholder's permission to process transactions that exceed his or her personal limit.
5. The Law Improves Gift Cards issued by retailers, restaurants and other businesses. It requires greater disclosure on gift cards fees and restricts inactivity fees, as well as expiration dates. The terms must be clearly disclosed.
6. Consumers Must Now Be Given Plain Language Disclosures. Credit card contracts must contain language that is easily understood by consumers. Before opening accounts, cardholders should receive disclosures of the terms and clear statements of future activities. For example, statements should prominently display fees paid in the current month and year-to-date, as well as the reasons for them.
7. Information about Credit and Payment Decisions Must Be Provided. Issuers of credit cards are required to inform consumers about the consequences of their decisions. This includes providing statements that show how long and how much it would take to pay off a balance by making only the minimum required payments. Statements should also disclose the monthly payment amount needed for cardholders to pay off the balance in 36 months.
8. In-House Payments Will Be Credited Faster. If a financial institution issuing cards accepts payments in person at its branches, it must credit accounts on the day the payments are made. (Some institutions waited until the next business day, which has resulted in late fees for cardholders.)
9. Contracts Must Be Publicly Posted. Credit card companies are now required to make contracts accessible online, as well as in a hard copy.
10. The Law Cleans Up Credit Practices on College Campuses. A person under the age of 21 cannot be issued a credit card unless:
- It's determined that he or she has the independent financial means to pay the bill.
- A parent, guardian, or individual over 21 becomes a co-signer.
The law also prevents card issuers from using incentives to entice students to sign up -- a standard practice on college campuses.
Important: Examine credit card offers and agreements carefully. To make up for lost revenue from the new law, some issuers are now raising annual fees and imposing higher balance transfer fees or other charges.
What About Corporate Credit Cards?
While the new law described here provides these 10 protections for consumers, it does not extend them to traditional corporate cards. However, small business owners who use their personal cards for business purposes will be covered by the new credit protections.
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Arthur J. Hurley, CPA is a Partner with Daszkal Bolton and founder of the firm's professional athlete and celebrity niche practice, Game Plan Financial. Since coining the phrase "Sports Accountant" in the mid-1980s, he has become one of the most experienced and respected sports accountants in the industry. Art develops comprehensive and coordinated financial plans, including financial management, tax planning and compliance, risk management, and business advisory services for his clients. Art also assists his clients with second career planning, ensuring a smooth transition to their next profession from the sports industry. He continues to act as his clients' trusted advisor beyond their sports and entertainment careers.
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