During the summer of my junior year at college, I was walking to class and passed a table filled with towels embroidered with our school logo and water bottles bearing the college crest. Beside these objects were several applications and pens advertising low interest rates and no payments for the first six months with all approved applications. This was my introduction to the world of the credit card. With the whirl of a black pen, I was handed my first temporary credit card with a $750.00 limit and also a beautifully embroidered golf towel (which I lost 3 weeks later). Without a job or even a credit history, I was off to discover all of the things I could buy with this little piece of plastic. Little did I know that this credit card was the beginning the trend of spending which I would continue into my later adult years. Fortunately, in 2009, Congress and our President stepped in to address the practices of credit card companies.
Over the past two years, many of us have seen credit card interest rates skyrocket from single to double digits – sometimes reaching well above the 20% range. In response, the federal government promised credit card reform to rescue consumers from the ongoing mystery and mayhem incited by the credit card companies. As promised, in May of 2009, President Obama signed in to law the “Credit Card Accountability Responsibility and Disclosure Act of 2009” commonly referred to as the Credit CARD Act of 2009.
The various provisions of the Credit CARD Act of 2009 offer consumers many protections against common practices of credit card companies. All of the fine details of the Credit CARD Act cannot be summarized within the limited bounds of this article. However, the balance of this commentary will provide an outline of the Act’s major provisions.
Under the Credit CARD Act, a credit card company cannot simply increase interest rates, annual fees, or finance charges whenever it chooses. The company must now provide a cardholder with a minimum of 45 days notice of the intended increase. Furthermore, the company cannot increase these items on an existing cardholder’s account unless the increase results from: (1) the expiration of a specific time period, such as a promotional rate for a set time period, so long as the cardholder is provided with ample notice of the intent to increase prior to the initiation of the promotional period; (2) a change in the actual index which is not under the credit card company’s control and is available information for the general public; (3) failure of the cardholder to make proper payment on the account during a 30 day grace period which begins immediately after the due date; (4) a hardship arrangement or agreement for repayment between the company and the cardholder; or (5) the cardholder’s failure to make the appropriate payments under the arrangement or agreement noted in (4).
The Act also prohibits a credit card company from penalizing those cardholders who make their payments on time. First, the Act eliminates the old practice of “double-cycle billing”, where the company would charge interest on a debt that was actually paid during a grace period. Additionally, companies cannot impose additional fees on the “interest only balance” of a cardholder who continues to make timely payments. Third, the company can no longer charge additional fees when a cardholder chooses to make a payment in some specific manner, (i.e. the typical $15 charge if paid by telephone), except when the payment is made through some form of expedited service of the actual credit card company.
Also along these lines, the credit card company cannot play games with a cardholder who makes timely payments on his or her account. Bills must be mailed by credit card companies to their cardholders so as to provide each cardholder with a minimum time period of 21 days to make payment before the actual due date, which must fall on the same day of each month. Should that day be a weekend or “legal banking” holiday, then the due date is considered as the next business day. Furthermore, payments received on the due date by 5:00 p.m. are considered timely.
The Act also clarified some very specific issues for consumers. Importantly, the term “fixed” commonly used by the credit card companies when referring to the interest rate on a card is required to remain constant over the period of time that is clearly outlined in the terms of the credit card account. This new provision eliminates the fear of most consumers that the credit card company will simply raise rates on their card whenever they choose despite the initial offer that came with the card.
The Act outlines several other important considerations for consumers, such as the right to refuse a “preapproved” credit card right up to the time the consumer activates the card without any negative impact on the consumer’s credit report; consumers have the right to an offer of a “fixed” credit limit that cannot be exceeded, but if it is exceeded, no additional fee can be assessed against the cardholder, except in very limited and specific circumstances. Additionally, all payments must be credited against the highest interest bearing debt (i.e., a cash advance) before applying such payments to the lower interest debts.
One new and eye-opening requirement that consumers will see on their credit card statements is the calculation by the company as to how long it will take a cardholder to pay off the debt if only the minimum payments are made and the total amount of interest that would be paid in such a scenario. Many people have already discovered this new formula on their statements and were absolutely shocked (this author included) at the reality of making such payments. Additionally, however, a credit card statement must also bear an additional calculation as to the required payment to eliminate the card balance within 3 years and another calculation of the amount of interest that would be paid under that scenario. Of course, this new information is expected to lead many of us to increase the amount of our payments and satisfy these debts much sooner than otherwise expected.
One other series of requirements which are most important to this author revolve around the protection of younger consumers from credit card companies. The Act requires that a credit card cannot be issued to anyone under the age of 21, unless that individual has a cosigner who is over the age of 21 and is capable of repaying the debt incurred on the account (i.e. parent, legal guardian, etc.). Additionally, credit card companies must now have a legitimate reason to market their cards at universities and colleges. Furthermore, the companies can no longer hand out promotional items such golf towels, water bottles, gift certificates, etc., to seduce a consumer to sign up for a credit card.
While there are other idiosyncrasies to the Credit CARD Act of 2009, the highlighted provisions will most substantially affect consumers and existing credit card holders. Certainly, we can all appreciate the efforts of our government to reform the practices of credit card companies. However, until the application of the Act, its oversight and enforcement, and the initiation of regulations pertaining thereto are more fully outlined and tested, this author remains skeptical as to the practical effect of these provisions, excluding, of course, the “wake-up call” minimum payment chart. I had no idea that college golf towel would be so expensive.
To discuss the matters of consumer protection, and to discuss your rights regarding credit cards, contact the lawyers at Wolf, Baldwin and Associates, P.C. for a consultation today.
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