Credit Cardholders’ Bill of Rights Act
Americans carry about $850 billion in credit card debt, which represents an average debt of over $17,000 for the roughly 50 million households that don’t pay their credit card balances in full every month, according to the Consumer Federation of America.
My Yahoo!Finance column this week looks at the continuing abusive practices by credit card companies, who will finally have their worst practices reined in by a law that takes effect next February. Here are the highlights, from Consumer Fed, of the Credit Cardholders’ Bill of Rights Act (H.R. 627), signed by President Obama last month. The new law prohibits:
-Unjustified and retroactive interest charges. Card companies cannot hike interest rates retroactively on balances accrued before a rate increase takes effect (with minor exceptions) unless the cardholder is more than 60 days late in paying a bill. If such interest rate increases occur, card issuers must lower the rate after six months of on-time payments following the increase. Card companies would not be able to raise interest rates in the first year after a card account is opened.
-Universal default on existing balances. Credit card issuers cannot increase a cardholder’s interest rate on existing balances based on adverse information not related to card behavior.
-Excessive and growing penalty fees. Penalty fees would have to be reasonable and proportional to the late or over-limit violation. Card issuers could not charge over-limit fees unless the cardholder has affirmatively agreed to allow over-limit transactions.
-Deceptive and costly payment application methods. Card companies would have to apply payments in excess of the minimum amount to the credit card balance with the highest rate of interest.
-Unfair billing practices. Card companies could not use “double-cycle” billing or impose interest charges on any portion of a balance that is paid by the due date.
-Pay-to-Pay. Card companies could not charge a fee for any payment method that is allowed, except for expedited service provided by a service representative.
-Irresponsible lending and aggressive marketing to young consumers who do not have the ability to repay debt. Credit card issuers could not extend credit to consumers under the age of 21 unless the person has an independent means to repay the loan, or there is a cosigner who has such ability. Consumers under the age of 21 could choose whether to receive credit card solicitations.
If your credit card company changes the terms of your contract, think twice before you reject them. If you opt out, your account may be frozen while you pay off your balance under the old terms. And closing the account, especially if you have a long history with it, could negatively impact your credit score.
I had this concern when I wanted to close a Mastercard I’ve had for more than a decade. The card gave me American Airlines miles, but I had moved to New Jersey and Newark Airport is not a hub for American. In addition, the card charged an annual fee. When I called to close the account, the company offered to transfer me to a different card with no annual fee, which racks up miles on any airline with no blackout dates, and would retain the credit history of the old card. I took them up on it.
Are you still experiencing unfair practices from your credit card issuer? Comment here or email me at laura at laurarowley.com.
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