CARD Act Part 2: Key Credit Card Reform Takes Effect

Yesterday, Phase Two of the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) came into effect. This should theoretically be putting the brakes on some bad behavior by credit card companies.

Said President Barack Obama: "[T]oday, we are shifting the balance of power back to the consumer and we are holding the credit card companies accountable."

Indeed, major credit card companies have engaged in what many would argue are unfair and deceptive practices for years. But the relentless lobbies of the major credit card companies and the banks have helped these companies evade legislative reform for decades.

Now, the tide of credit card reform may have shifted.

For a breakdown of the provisions which took effect last August, including the requirement to give customers advance notice of significant changes in the terms of their accounts, see our previous post about phase one of the implementation of the CARD Act.

The changes that went into effect yesterday include:

• Interest rates: Credit card companies can no longer raise rates on existing credit card balances, with certain important exceptions. Furthermore, if you open a new account, the credit card company can't raise the rate for 12 months. This, of course, is pending certain conditions. However, amongst the shady rate hikes that will no longer be allowed is the infamous "universal default," the practice by which card companies kicked on-time customers into penalty interest rates if they fell behind to an unrelated creditor (such as by missing a car payment, mortgage payment, payments on other cards, etc.).
• No more (of certain) fees. That's right- credit card companies are no longer allowed to charge you certain fees, such as fees for paying your card over the phone. However, new fees could likely be looming.
• How your bill payments are applied: Remember when you would send your payment in, only to have it applied to the part of your balance with the lowest interest rate? No more! Card companies must now apply your payment to the balance with the highest interest rate.
• Bye Bye two-cycle billing! Credit card companies can now only calculate your interest on your current cycle's balance.
• Enhanced disclosures regarding minimum payments: The companies must now show you exactly how long it will take to pay off your card if you pay with only the minimum balance.

Although these credit card changes signal relief for credit card holders, legislative news isn't always so one-sided. The new rate limitations, for example, will lead credit card companies scrambling to recuperate the lost income by circumventing the restrictions and becoming more aggressive in areas where they have some breathing space. Furthermore, the limitation in fees could just mean more aggressive tactics in figuring out new fees which escape the legislative limitations.

The effect on the consumer credit industry has yet to be seen in the wake of this new legislation. It will be interesting to see how major credit card companies respond to the CARD Act's credit card reform, and to see if the new law deters the unfair and deceptive practices many feel have long pervaded the industry.

Related Resources:

• The White House Blog (The White House)
• How credit card reforms will affect you (USA Today)
• Fact Sheet: Reforms To Protect American Credit Card Holders (The White House)
• First Part of New Credit Card Laws Take Effect (FindLaw's Common Law)
• Credit Card Debt (provided by George R. Belche, Attorney at Law, LLC)