New Rules to Protect Credit Card Holders |
Margaret Jasper for Lawyers.com
- New rules for credit cards go into effect in July 2010
- Under the new rules, interest rate increases on new credit cards are limited during the first year
- The new rules give cardholders at least 21 days to pay credit card bills
In July 2010, new rules will go into effect that will finally give credit card holders some much needed relief from rapidly changing credit card terms and unfairly imposed late fees and penalties.
The Federal Reserve has approved many new changes to protect credit card holders who have been at the mercy of credit card companies that have been unilaterally changing terms and retroactively hiking interest rates. Highlights include:
- A limit on interest rate increases
- Payments go to balances with the highest interest rates first
- An end to universal default
- Additional time to make payments
From 0 to 25 - Stop the Interest Rate Hikes!
You're approved for a low-interest or even zero percent credit card and before you know it, the interest rate is tripled, and you have already run up a balance on the card. The minimum payment has increased to an amount that threatens to break your budget.
Worry no more! When the new rules go into effect, credit card companies won't be allowed to raise interest rates on new transactions during the first year, except under limited circumstances:
- The rate increase was disclosed to you when you opened the account
- The card has a variable rate
After the first year, the credit card company may only increase the interest rate on new transactions if they give you 45 days' notice of the change. In addition, interest rates on existing balances can only be raised if the minimum payment is received more than 30 days after the due date.
Higher Interest Balances Paid First
Most credit card companies assess different interest rates on your account depending on the type of transaction. Generally, cash advances are assessed the highest rate, followed by the regular purchase rate, and promotional offers carry the lowest rate.
Currently, payments you make above your minimum amount due are credited to the balance with the lowest rate first, until that balance is paid in full. In the meantime, the balances with the higher rates are paid last. For example, if you take a cash advance, and continue to use the card for purchases at the regular purchase rate, the high interest cash advance balance may never be reduced.
Under the new rules, any payments you make above your minimum amount due will go to the higher interest rates first, or will be distributed among all balances proportionately. No longer will credit card companies be able to maintain your higher interest balances indefinitely.
Universal Default Eliminated
Universal default refers to the practice of credit card companies raising interest rates on a cardholder based on the their payment history with a different creditor. So, even if you pay your credit card "A" bill on time every month, if creditor "A" finds out you defaulted on your credit card "B" account, creditor "A" may consider you a risk and raise the interest rates on your credit card "A" account. The new rules eliminate this practice.
Related Resources on Lawyers.comsm
- Access hundreds of Legal Forms that cover a range of personal and business legal needs, including Personal Finance and Credit Forms
- Read Fair Credit Billing Act and and Credit Cards FAQ, or access more Debit & Credit articles and information
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- Visit the Forums for discussions on Creditor/Debitor topics