Confessions of a Laid-off Lawyer

Just Your Average Joe Blogging Away His Debt—In One Year or Less

Such a CARD!

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Total Black: $90.46
Total Red: $229,121.20

Ah Congress.   That austere body.  The bequest to countless generations of the Founding Fathers.  And how we have squandered that bequest.  Today the CARD Act went into effect.  And what major changes does it enact?  What manna from congressional heaven will fall?  Not much really. 

So what does the Credit Card Accountability Responsibility and Disclosure Act of 2009 accomplish?  Well, if like me, you’re struggling, there’s not much in it for you.  If you’re doing just fine with your cards, well then this one’s for you.  But then again, you wouldn’t have needed the help.  But that’s just like Congress to pass laws that help those who have already helped themselves.

Highlights can be found on MSN Money or CNN Money.  What I found interesting is the following:

Credit card companies may still charge you over the limit fees, but only for three months.

“With respect to a credit card account under an open end consumer credit plan, an over-the-limit fee may be imposed only once during a billing cycle if the credit limit on the account is exceeded, and an over-the-limit fee, with respect to such excess credit, may be imposed only once in each of the 2 subsequent billing cycles, unless the consumer has obtained an additional extension of credit in excess of such credit limit during any such subsequent cycle or the consumer reduces the outstanding balance below the credit limit as of the end of such billing cycle.”  (emphasis added)

If I’m reading the language of the bill correctly, credit card companies can only charge an over-the-limit fee for the specific month that you go over the limit and then for the following two months.  But that assumes that you do not make a payment that “reduces the outstanding balance below the credit limit,” thereby allowing the credit card companies to reset that over-the-limit fee clock.  So, I suppose for those of us who stay over the limit for say six months, we’ll see relief because we’ll only be assessed a fee for three of those six months.  But as soon as you bring that balance back down under the limit, I’m sure the credit card companies get to reset that fee clock.

Credit card companies may continue to allow us to go over the limit but now we have the option to lock our credit limit and not permit any transaction to exceed that limit.  The credit card companies can allow us to exceed our limit, but cannot assess a fee if they do.

Credit card companies can still jack up your interest rates, but now they must give you forty-five days notice.  And if you don’t want the increased rate, you can cancel your card and pay the balance off at the lower rate.  Great.  A lot of good that does in a credit-driven society.  Good luck opening another card too.  Opening and closing cards is a surefire way to get bad credit scores.  If you keep your card open and take they higher rate, the credit card companies can keep your rates at that jacked-up rate until you pay on time for six consecutive months.  Screw up once and that clock resets, I’m sure.  Once you hit the six month marker, then they only have to review your account for a possible reduction in your interest rate.  They aren’t required to actually reduce your rate.  So if, like me, and you’re already at a high rate, this certainly is no panacea for you.

The act prohibits a few bad practices: the days of credit card stands giving away pizza or free promotional items in malls or on college campuses are gone.  And now no one under age twenty-one can get a credit card unless someone over twenty-one co-signs—unless the youngins can provide proof of means to repay.   And what a surprise, the Board of Governors of the Federal Reserve System are tasked with developing regulations by which credit card companies can gauge whether an eighteen year-old has the “means to repay.”  I predict a hollow victory; a paystub and a cellphone bill will probably suffice.

At least those Visa gift cards now won’t start losing value until twelve months have passed.  Those inactivity fees have been blocked as well.  For a year.

Maybe I’m not seeing it.  But what really does this act do?  Congress made a limit mean “limit” and required credit card companies review our interest rates every six months.  Seems lately Congress is a blustering fool that struts and frets its hour upon the stage, passing legislation full of sound and fury, that ultimately signifies nothing in the end.

Ah . . . Congress, such a card, eh?

  • Cardholders Deserve Protections against Arbitrary Interest Rate Increases.
    • Requires card companies give cardholders 45 days notice of any interest rate increases.
    • 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; gives cardholders 3 billing cycles after the rate increase to say no to these new terms.
    • Prevents card companies from retroactively increasing interest rates on the existing balance of a cardholder in good standing for reasons unrelated to the cardholder’s behavior with that card (the so-called “universal default” rate increase).
    • Prohibits card companies from arbitrarily changing the terms of their contract with a cardholder, banning the so-called practice of “any-time, any-reason repricing.”
  • Cardholders Who Pay on Time Should Not Be Penalized.
    • Prohibits card companies from charging interest on debt that is paid on time during a grace period. This prevents the so-called “double-cycle billing” practice.
    • Prohibits card companies from slapping fees on the remaining interest-only balance of a cardholder who has paid his/her bill on time.
    • Customers who have been subject to a rate increase and then pay on time for six consecutive months must have their interests rates returned to the rate it was before the rate increase. Requires creditors to review payment history each six months and to determine if a rate decrease should apply.
  • Cardholders Should Be Protected from Due Date Gimmicks.
    • Gives cardholders time to pay their bills by requiring card companies to mail billing statements 21 calendar days before the due date (14 days was the previous minimum).
    • Requires that payments made before 5 p.m. EST on the due date are considered timely.
    • Requires the due date to fall on the same day each month. If the fixed due date normally falls on a Saturday, Sunday or legal banking holiday, then the due date shall be pushed forward to the next business day after the date. This measure prohibits due dates to fall on a weekend or holiday.
    • Directs card companies to provide on every statement, a phone and internet address that a cardholder can access for payoff balances.
    • Prohibits card companies from charging late fees when a cardholder presents proof of mailing payment not less than 7 days before the due date.
  • Cardholders Should Be Protected from Misleading Terms.
    • Prevents card companies from using terms such as “fixed rate” and “prime rate” in a misleading or deceptive manner by establishing single, set definitions of those terms.
    • Gives cardholders who get pre-approved for a card the right to reject that card up until the moment they activate it without having their credit adversely impacted.
    • Imposes a requirement that creditors have a minimum size font on their statements to improve readability of the terms for the credit card.
  • Cardholders Deserve the Right to Set Limits on Their Credit.
    • Requires card companies to offer consumers the option of having a fixed credit limit that cannot be exceeded.
    • Prevents card companies from charging over-the-limit fees on a cardholder with a fixed credit limit.
  • Card Companies Should Fairly Credit and Allocate Payments. (Title I, Sec 104 (4))
    • Requires card payments to be applied to the debt with the highest interest rate first (after minimum payment). Most card companies currently require cardholders to pay off a lowest interest rate balances first.
  • Card Companies Should Not Impose Excessive Fees on Cardholders.
    • Limits the amount of “over-the-limit” fees card companies are allowed to charge to 3. Some card companies currently charge limitless fees for going over credit limits.
  • Vulnerable Consumers Should Be Protected From Fee-Heavy Subprime Credit Cards.
    • Requires that all fees for subprime cards, whose total fixed fees over a year exceed 25 percent of the credit limit, be paid up front before the card is issued. These cards are generally targeted to vulnerable consumers.
  • Congress Should Provide Better Oversight of the Credit Card Industry.
    • Improves existing data collection on industry profits, as well as card fees and rates; requires this information to be presented to Congress every year.
  • Minimum Payment Explanation
    • 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.
    • Requires creditors to print on their statements the payment it would take the debtor 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.
  • Limits Credit Cards to Teens
    • A credit card cannot be issued to someone under age 21, unless they have a co-signer (who is 21 or over), or can provide proof of a means to repay.
  • College Bank Curtailment
    • Requires banks to provide a reason for participating on college campuses and at university-themed events.
    • Outlaws banks giving gifts or any promotional items (such as coupons for free pizza) to entice debtors to take on debt by signing with their credit cards.

One Response

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  1. The CARD act does at least three really valuable things for consumers:

    1. It bans the use of universal default. That was the practice where a card company would use the fact that you had defaulted on a different card to jack your rates. In other words, if you defaulted on one credit card, all of your other issuers could impose penalty rates even if you were current on them.

    2. it requires card companies to apply payments to the charges with the *highest* interest rates first. Previously, they would credit the charges with the lowest rates first. So if you had three groups of charges, one with a .99% intro APR, one with your regular 10% APR, and one with a penalty APR of 25%, it used to be the company would credit payments to your lowest APR charges first so they could rack up the most interest payments. This reverses that.

    3. No more retroactive rate increases. Before the CARD act, I had a card with a 5.9% rate. The bank more than doubled my rate and applied the new amount to the entire balance of the card. After the CARD act, they can’t do that. Any *new* charges would have the new rate, but old charges would keep the previous rate.

    So no, the CARD act isn’t perfect. Companies can still create new fees. But it does address some of the most egregious practices.

    And BTW… you’re wrong that canceling cards is by necessity bad for your credit score. It can affect your credit utilization ration, but since presumably you’re talking about cards with balances, you will also improve your ratio as you pay off the debt.

    Jim in Chicago

    February 23, 2010 at 10:19


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