New rules for credit card companies to follow took effect Monday, putting new restrictions on the interest rate hikes and penalty fees they can charge consumers and small businesses.
The Credit Card Accountability, Responsibility and Disclosure Act, which President Barack Obama signed last spring, had some provisions take effect last August. Many of the provisions were delayed until February to give credit card companies time to adjust, although some used the opportunity to increase their rates and fees.
The provisions aim to stop unfair interest rate hikes and changes in terms, prohibit exorbitant and unnecessary fees, defend the rights of responsible credit card users, and protect young consumers against aggressive credit card solicitations.
Starting Monday, credit card customers will see an end to many abusive practices that have driven Americans into debt, said Senate Banking Committee Chairman Christopher Dodd, D-Conn., in a statement. Customers need to act responsibly. In turn, they deserve to be treated fairly.
Under the new provisions, interest rate hikes on existing balances will be prohibited unless the cardholder is more than 60 days late in making a payment. Universal default the practice of raising interest rates on customers if they are late paying an unrelated bill such as a car loan or a utility bill will be prohibited for existing balances. Teaser rates will be required to last for at least six months, and credit card companies will be prohibited from increasing rates in the first year after a credit card account is opened.
Billing statements will have to clearly display payment due dates and late payment penalties, and credit card agreements must be posted on the companys Web sites. Monthly statements will also need to warn cardholders about how long it will take them to pay off their balances if they only make the minimum payments.
Credit card companies will be required to notify cardholders 45 days before changing the terms of their accounts, giving cardholders time to shop around for a better deal and opt-out of the changes, and allowing cardholders to close their accounts and pay off the balance under their current terms. Cardholders will generally have at least five years to pay off the balance.
Statements must be mailed out 21 days prior to the bills due date. Credit card companies will no longer be able to set early morning or other arbitrary deadlines for payments.
Any payments in excess of the minimum payment must be applied to the customers credit card balance with the highest interest rate, rather than applying payments to the customers balance with the lowest interest rate as many companies currently do to increase profits.
Card companies will generally be prohibited from charging fees to pay bills by mail, telephone, or electronic transfer. Penalty fees will need to be reasonable and proportional to the omission or violation. Customers will be able to choose whether or not they want over-the-limit fees on their account. Those who do not opt for these fees will have transactions rejected if they exceed their credit limit.
For applicants under the age of 21, credit card companies will be required to obtain an application that contains the signature of a parent or guardian or information showing that the applicant has the financial resources to repay the debt. Card companies will be prohibited from offering free gifts in exchange for credit card applications on college campuses, cracking down on misleading marketing tactics.
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