New credit card rules aid consumers

Springfield-area financial institutions are preparing for new consumer protections offered by the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 - or CARD Act - signed into law May 22 by President Barack Obama.

Consumers struggling in a quagmire of credit card issues, including fluctuating interest rates and payment due dates, will begin to see relief starting Aug. 20, with the full roster of protections being phased in by Feb. 22, 2010.

"It's fair to say that at this point we don't have a lot of specific governing information from the Federal Reserve on the new legislation, but consumer education regarding credit cards is important," said Shelly Titus, executive vice president and retail market manager for Empire Bank, which offers credit cards.

CARD aims to end the days of excessive rate hikes and hidden fees. According to the White House press office, each year Americans pay around $15 billion in penalty fees, and nearly 80 percent of American families have a credit card, with 44 percent carrying balances.

The goals of the legislation are to ensure that consumers can shop for a credit card that meets their needs without fear of being taken advantage of; to require credit card companies to provide clear communication in statements; and to foster more accountability in the credit system.

"With this new law, consumers will have the strong and reliable protections they deserve," Obama said in a news release. "We will continue to press for reform that is built on transparency, accountability and mutual responsibility - values fundamental to the new foundation we seek to build for our economy."

New terms

New protections have broad appeal among consumers. Empire's Titus said paying with plastic is a popular choice, with 75 percent of consumers having at least one credit card.

"Credit cards are a safe way to pay for things; they are easy to replace if lost or stolen and they are easier than cash," she added.

The act bans interest rate increases on existing balances for any reason and severely restricts retroactive rate increases due to late payments. Contract terms must be clearly spelled out and stable for the entire first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least six months, according to the legislation.

Consumers also will see an end to late fee traps. Institutions will have to give cardholders a reasonable time to pay the monthly bill - at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month and deadlines that fall in the middle of the day.

In addition, credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do. The act also ends the confusing practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called "double-cycle" billing.

Consumers will find it easier to avoid over-limit fees because institutions will have to obtain a consumer's permission to process transactions that would place the account over the limit. Fees on subprime, low-limit credit cards will be substantially restricted.

Credit card contract terms also will be disclosed in language that consumers can see and understand so they can avoid unnecessary costs and manage their finances.

Credit card companies also will have to create more detailed billing statements, according to the new legislation. Statements must explain the number of months it will take to repay the credit card balance if only minimum payments are made. They also must show the amount that must be paid each month to repay the balance in 36 months.

The legislation also offers some protection for college students and those under 21, requiring either a co-signer or proof of independent means for repayment.

Leading the pack

Not all financial institutions, however, will have to make major adjustments, as a majority of credit unions already conform to the rules laid out in the new legislation. In a June opinion piece published in the New York Times, Harvard economics doctoral candidates Ryan Bubb and Alex Kaufman dispel myths surrounding CARD. The piece, "A Fairer Credit Card: Priceless," notes the authors' findings that credit unions largely already conform to the new rules while still offering basic features and conveniences that consumers expect.

"We have been fortunate to establish a very strict policy for a long time and were upfront and honest about our disclosures from the beginning," said Jenny Reynolds, vice president of marketing for CU Community Credit Union. "We have had a lot of people coming into the credit union from other institutions because after being a long-time customer and being a day late on payment they had their credit limit decreased or (interest) rate randomly affected."

Empire's Titus said that consumers are usually better off working with local financial institutions that can deal with a customer's individual circumstances.

"We are a community bank, and we are looking at the credit card as part of a full relationship with the customer," Titus says. "If our customers are within five days of the payment date, we don't charge a late fee. We don't do a lot of sporadic changes in terms of late fees."