Credit Cardholder's Bill of Rights Act

July 11, 2009 (CHICAGO) Eighty percent of American families carry credit cards, with 44 percent of these cardholders carrying a monthly balance. While the Cardholder's Bill of Rights Act of 2009 strives to address some problematic billing practices, it does not alter the fact that responsibility for the prudent use and management of the card ultimately belongs to the cardholder.

Joan Jensen, president and CEO of The Central Credit Union of Illinois is here today to tell us about some of the Act's new rules -- which don't take effect until 2010 -- and explain how they might benefit some and at the same time become a potential drawback to others.

Benefit highlights of the bill

Provides New Safeguards for the Young

  • Protects Young Adults--Requires people under the age of 21 have an adult co-signer or verifiable means of repaying an extension of credit
  • Limits Marketing--restricts card promotion and distribution to college students

Limits Rate Hikes

  • 45 Day Advance Notice--Increases length of time needed for notification of a change in terms
  • Rates Frozen on Existing Balances--Prohibits issuers from applying increased annual percentage rates to any transactions and balances that existed prior to the increase
  • Halts Universal Default--Stops the practice of raising interest rates based upon payment records with other unrelated creditors
  • Rate Changes Limited on New Cards--Ensures promotional rates remain in effective for a minimum of six months and restricts interest rate increases for the first year after an account is opened
  • Restrictions Placed on Penalty Rates--Increases permitted only if minimum payment is 60 or more days delinquent and penalty rate can be applied only for 6 months if minimum payments are being received during that time period

Restricts Fees

  • Over-Limit Fees--Consumers must "opt in" to have transactions posted that would cause them to exceed their credit limits and be charged a fee
  • Late Fees--Statements must be mailed 21 days prior to payment due date and disclose late payment deadlines

Potential negatives of the bill

Some analysts are predicting that creditors will earn less on fees and interest under these new regulations. They are predicting that creditors will respond by imposing new measures that could adversely impact some consumers. These negative effects include:

  • A Reduction in the Number of Grace Days
  • Higher Rates of Interest
  • Elimination of Reward Programs
  • Elimination of Teaser Rates
  • Return of Annual Fees
  • Lower Credit Lines
  • Reduced Access to Credit

Take these measures

  • Review All New Disclosures Promptly--Many creditors are changing terms prior to the new law taking effect
  • Think Twice Before You Cancel a Credit Card--Long term, good payment history and available credit helps improve your credit score. Additional cards also give you options for your credit transactions. Best to have three major credit cards.
  • Selectively Apply for New Cards--If your existing cards do not have favorable terms, apply for a couple of cards with more favorable terms
  • Use Cards Wisely--Use them occasionally to keep them in active status, keep a close eye on total balance, and strive to pay balances in full every month.

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