Credit Commentary

Changes after Credit Card Act 2009

By Zarana on Friday, July 03 2009

The newly minted Credit Card Accountability, Responsibility, and Disclosure Act of 2009 have been signed into law. Here’s the breakdown on the changes when the law comes into effect February 2010.

1. Universal Default

Before
Under Universal default term a particular lender can change the terms of a loan from the normal terms to the default terms when that lender is informed that their customer has defaulted with another lender, even though the customer has not defaulted with the first lender.

After
This practice has been eliminated.

2. Double Billing Cycle


Before
The double billing cycle meant that the credit card company had the right to calculate interest on the past two cycle’s daily balance. In some cases, this amounted to extra interest needed to be paid (on top of the interest on the current balance).

After
This has now been stopped and credit card companies cannot charge any interest on the balance that has been paid.

3. Any - Time any - Reason Changes in Terms is eliminated

Before
This was a standard disclaimer on cards and meant that the credit card companies could change rates any time on existing balances.

After

This rule has been eliminated now, and the credit card company can only change the fee or APR, after the expiry of the contract, or for reasons that have been specified in the contract. Also, an Advance notice of 45 days prior to significant changes in credit card terms: this includes the benefits and reward structure of a credit card. Additionally, Interest rate cannot be increased within the first 12 months, and promotional rates must have a minimum of 6 months in duration. All Credit card issuer must review the cardholder’s account six months after increasing the interest rate, and return the APR to the previous lower level if the cardholder has been on-time with payment.


4. Pro Rata Payment on Card with Two APRs

Before
Normally credit cards charge a different APR for cash advances and regular purchases. In the past they had the option of using the repayment towards the amount that had the lower APR before applying it towards the amount with the higher APR.

After
But, they can’t do that any longer. But, credit card companies can still use the payment made to pay off higher APR balance first.

5. Over the Limit Transactions

Before
Credit Card allowed the consumer to make purchases more than the credit limit and the difference would be charged with heavy fees.

After
Over credit limit fees are now prohibited unless consumers specifically agree to allow transaction to go through instead of being denied.


6. Protection for young consumers

Before
Earlier, Credit Card companies could issue a credit card to any adult, above 18 years, and did not require any parents/guardians approval letter.

After
But, now this is not the case. Credit cards cannot be issued to people under the age of 21 unless they have an adult co-signer or show proof that they have the means to repay the debt (proof of reasonable income). Moreover, College students will be required to receive permission from parents or guardians in order to increase credit limit on joint accounts they hold with those adults.



In addition to the changes listed above, the new regulation imposes strict guidelines to the consumer disclosure as follows:

  • Clear disclosure on how long it would take to pay off a credit card balance if cardholder makes only the minimum payment each month.
  • Clear disclosure on the total cost in interest and principal payments if a cardholder makes only the minimum payment each month.
  • Late payment deadline and postmark date are required to be clearly shown and disclosed to cardholders.


 

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