New Credit Card Legislation
There have been some major changes to the rules governing credit cards, with the last round taking effect on August 23rd. These rules were implemented to protect the consumer and it is important that you know how it could affect you. This is an overview of the major changes that have taken place.
Interest rates cannot be increased in the first year the account is open. However, there are a few exceptions:
- Credit card issuers can increase interest rates if there is a promotional rate such as 3% for the first 6 months followed by an increase to 15%. (The introductory rate must be at least for 6 months.)
- If you don’t make the required minimum payment within the first 60 days, rates can increase.
- If your card has a variable interest rate tied to an index.
If your rate or other fees are changed, 45 day notice is required. If the credit card issuer is going to increase interest rates, change fees or change terms of your card, they have to provide you with a 45 day notice, in most cases.
Know why your Annual Percentage Rate (APR) is increased. The credit card issuer is now required to provide an explanation of why your ARP increased. They also have to re-evaluate the rate every 6 months.
New interest rate only applies to new charges. If your interest rate is increased, the new rate only applies to new charges. If you have an old balance, your old interest rate would apply to that balance.
Caps have been set on late fees. Your credit card issuer cannot charge more than your minimum payment, up to $25, for late fees unless:
- One of your last six payments was late – they can charge up to $35.
- They can show that costs associated with the late payment justify higher fees.
No inactivity fees. You can no longer be charged a fee for not using your credit card.
Younger consumers receive greater protection. For those under 21 looking to open a credit card account, you will need to show that you can make payments or you will need a cosigner. In order to increase the limit, the cosigner must agree in writing.
Gift cards, are now good for 5 years. New gift cards will not expire for at least 5 years. No fees can be deducted from the balance of the gift card if it has been used within the last 12 months.
The new legislation governing credit card issuers was put in place to protect us, the consumer, and it is important that we understand the changes. The credit card industry says these changes will cost their industry billions, but the way I look at it is these changes could save us, the consumer, billions. To find out more about the changes, you can visit this website, which goes into greater detail of all the changes and exceptions.
Jeff Studebaker
Smart401k Adviser
About Smart401k
Smart401k is a Web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at Smart401k.com.
