With many once-commonplace unfair credit card practices becoming illegal as of today, it's important for consumers to be aware of their new rights.
"The new law is a pretty big step forward for consumers in leveling the playing field against credit card companies," Ohio Attorney General Richard Cordray said. "The provisions offer new protections that will eliminate many of the sneaky, one-sided practices that made credit card transactions so confusing and unfair to consumers."
Treasury Secretary Tim Geithner calls the new law "a critical step forward in our effort to protect American families by prohibiting the use of unfair retroactive rate hikes and late fee and over-limit fee traps by credit card companies." But, he said, there is more to be done.
"As we work with Congress on broader reform to make our financial system safer and more stable, we are also working to consolidate the fragmented authority of seven separate agencies into a single, independent and accountable Consumer Financial Protection Agency," Geithner said.
The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009:
? Prohibits unfair rate increases: In general, credit card providers can no longer increase interest rates within the first year after a consumer opens a new account. They also cannot increase the rate on an existing credit card balance. Since August 2009, credit card providers have been required to give consumers a 45-day notice before increasing interest rates.
? Bans universal default: Using a practice called universal default, credit card providers could increase a consumer's credit card interest rate if the consumer was delinquent on other payments, such as a cell phone or utility bill. The new rules prohibit this practice.
? Restricts over-the-limit fees: Credit card companies must obtain approval from the consumer before allowing the consumer to charge more than the card's limit and subsequently issuing an over-the-limit fee.
? Requires a co-signer for most consumers under 21 years old: Credit card providers cannot issue credit cards to consumers under 21 years old unless the consumer demonstrates the ability to pay or has a co-signer, such as a parent, guardian or spouse.
? Requires fair payment allocation: Credit card providers can impose interest charges only on balances in the current billing cycle, eliminating a practice known as "double billing," which generally affects individuals who pay off their balance every month. They also cannot allocate payments in order to maximize the interest a consumer must pay.
The new law doesn't necessarily mean consumers' credit card problems are over. The Center for Responsible Lending (CRL) notes that many issuers are finding ways to "dodge the reforms."
According to CRL, some are:
? adopting schemes to game interest rates, with the little known "pick-a-rate" practice gaining increasing momentum. Pick-a-rate costs U.S. consumers $720 million per year and it may reach $2.5 billion annually as the practice spreads;
? shifting penalty fee structures to charge nine out of ten people the highest fee possible if they pay late, while projecting the appearance of lower fees. The average late fee today is $39, while the typical past-due amount is about $50; and
? padding their miscellaneous fees since the announcement of new Federal Reserve rules and passage of the Credit CARD Act, disguising many of the charges.
While acknowledging that the CARD Act is a good thing, Brad Stroh, co-founder and CEO of Bills.com, acknowledges that "for many consumers it will likely mean more headaches in managing their credit card account, and at the end of the day these changes could actually lead to higher fees or reduced lines of credit."
The best way to avoid these fees, reductions in credit, or elimination of accounts, he says, is to carefully monitor communications with a credit card provider and understand the implications of their changes as well as your actions. This means taking the time to read mailings and speak with representatives when appropriate.
"The days of tossing letters from your credit card company into the trash are over," says Stroh. "These mailings will likely contain valuable information and offers that will demand your attention."
Stroh offers these credit card management tips:
? Maintain prompt payment status with your credit card company. Demonstrating that you can responsibly meet your current credit obligations is the number one behavior that will impact your standing with the credit card company and your credit score. By missing or being late on a payment you will incur fees, potentially increase your interest rate, and lower your overall credit score.
? Pay down high balances to improve credit card utilization. This will show that you can responsibly manage your credit limit, minimizing the chance of higher tiers of interest rates or reductions in credit limit. Additionally, better credit utilization will help boost your credit score.
? Maintain activity on your credit card accounts. By using the revolving credit lines that you need or want to keep and promptly paying on them, you can help avoid cancellation of those credit card accounts. Additionally, some credit card companies are introducing inactivity fees. This behavior will avoid those fees and help boost your credit score, while having a long existing credit line closed could lower your score.
? Avoid fees through responsible spending habits. Credit card providers will likely look to recoup revenue by charging fees for extra services. New regulations prohibit over limit provisions unless consumers opt-in to the service. Card providers could then charge consumers for this right. By remaining aware of credit limits and balances, consumers can avoid a need for these fees altogether.
? Remember, new regulations do not apply to corporate or small business cards. This means some small business owners might consider using personal cards for business expenses because of fee and rate limitations. However, these owners should remain cautious because their personal credit scores could suffer in the event of missed payments or defaults.
"It is important to remember that these new regulations do not limit interest rates, they only make the communication with consumers more transparent," Stroh concludes. "The best approach then to these changes is to be proactive and adjust personal behavior to avoid negative implications."
Not everyone is happy with the way the CARD Act is being implemented. Consumer activists are critical of the pace of the Act's implementation. What do you think about it? Let us know.
Copyright 2010  consumeraffairs.com