As you might have heard, the new credit card law (i.e. the Card ACT) went into effect yesterday. The provisions of the new law that will impact most of us are the ones around interest rates, overlimit fees, payment allocation, and monthly statements.
Here is a quick summary of what you should know so that you can take full advantage of these pro-consumer changes:
Watch interest rates
The new rules will make it harder for credit card companies to raise a customer’s rates across the board. Under the so-called universal default practice, a consumer who was late on a payment for one credit card might have seen the interest rate rise on that card and another, unrelated credit card.
Be aware that interest rate hikes are going away using the first year an account is open and on existing balances. But card companies will still be able to raise interest rates in some cases, such as when you are more than 60 days late paying your bill or an introductory rate expires after six months.
Another huge exception: Issuers can raise your rate before the first 12 months is up if your rate is a variable one tied to an index and that index rises. These indexes are at historic lows, but when rates begin to rise to keep inflation at bay, so will your payments.
Watch over-limit fees
Another major change involves the fee charged when a consumer charges more than his or her credit limit. Until now, many card companies have allowed consumers to continue charging beyond set limits, tacking on sometimes hefty over-the-limit fees in the process. Cardholders will now have to “opt-in” for over-the-limit spending.
With the new rules, card issuers have to apply payments to the part of a bill with the higher interest rate. For example, if an account has a $5,000 balance with a regular rate of 15 percent, and a $5,000 balance at a promotional rate of 5 percent, the monthly payment must be applied first to the balance with the 15 percent rate.
Credit card statements will have to show how long it will take to pay off a credit card if only minimum payments are made. The statements will also have to show how a consumer may pay off the entire bill in 36 months if payments are increased.
Finally, if you are looking for more information you should also read our full analysis of the new credit card law.