The US credit card business – Credit CARD Act 2009

By: Carsten Lexa

On August 13th, 2009, I wrote an article here on Commercial Law International about the “secrets” of the US credit card business and about how the existing rules make it hard for customers to pay off their credit card debt. On November 3rd, 2009, I wrote in a the second article about a Goverment proposal regarding new legislation for the credit card business.

Now, coming into effect on February 22, 2010, the Credit CARD Act will apply to credit card contracts between banks and consumers. This Act adresses many of the criticisms consumers have had about credit cards and the high amount of credit card fees charged each year. Interestingly, the Act also applies to contracts made in the past. Let´s have a look at the most interesting new rules.

1. The Act requires card companies to give cardholders 45 days notice of any interest rate increases. In the past, interest rates could be changed within 15 days notice in most cases.

2. The Act gives cardholders the right to cancel their card and pay off their existing balance at the existing interest rate and repayment schedule if they get hit with an interest rate hike. Cardholders also have 3 billing cycles after the rate increase to say no to the new terms.

3. Beginning in February, the interest rate on existing balances can only be raised if a cardholder is more than 60 days late on payment. After a rate increase, if cardholders pay on time for six consecutive months, their interests rates must have returned to the rate it was before the rate increase.

4. The Act also adresses the problem of “payments above the minimum”. In the past, cardholders send in a payment for more than the minimum due – let´s say the minimum was $ 200,00 and they send in $ 300,00 and let´s also assume that they had two balances at different interest rates. The extra amount of $ 100,00, that was send in, would go to the card with the lowest interest rate.

The new law puts an end to that. According to the Credit CARD Act, the additional amount paid will go towards the higher-rated balance.

5. A long time ago, cardholders had 30 days from which to make their next payment. Over time, that grace period was reduced to 25 or even fewer days. The Credit CARD Act states that the grace period will be at least 21 days long from the date the credit card bill is delivered.

6. The Credit CARD Act finally improves the information the cardholder receives regarding the repayment of the balance. Let´s be true about that: Most cardholders have problems calculating the time they need to repay their credit card debt, if only the minimum is paid.

The Act gives cardholders mandatory information regarding repayment: It demands that creditors print on their statements if the debtor makes the minimum payment only (with no further increases in debt) how long it would take to retire the debt and how much the debtor would pay in interest combined. It also requires creditors to print on their statements the payment it would take thecardholder to retire the debt in three years, how much the debtor would pay in interest combined and the difference than if the debtor was to pay only the minimum payment.

This new Credit CARD Act is surely not the answer to everything regarding credit card debt and debt repayment. But it should relieve the US consumers of some of their burdens regarding credit card debt – and every bit helps.

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