The Credit CARD Act of 2009 has dramatically changed the way credit card companies operate. The purpose of this law is to protect consumers from predatory and overly aggressive (as well as highly profitable) tactics that led to greater consumer debt.
What The CARD Act Does
The CARD Act explains how and when credit card companies can increase interest rates and how they must notify the customers when they do so. This law also mandates when these companies must send out their billing statements.
First, the new Credit CARD Act stipulates that credit card companies must tell you two important facts: when they plan to increase your rates and fees, and how long it will take you to pay off your card balance when you’re only making the minimum required payment each month.
The Act also spells out certain rules regarding rates, fees and limits. Credit cards are not allowed to raise consumers’ interest rates for the first year. Interest rate hikes do not impact charges that consumers made before their card issuer raised its rates. Card companies are also forbidden from allowing consumers to go over their credit limits when making purchases. This provision helps protect consumers from sometimes high over the limit fees, as well as from making purchases without the necessary credit available.
CARD Act Restrictions
Restrictions on the way credit card companies send out and collect payments are covered as well. Card issuers must mail their billing statements out early enough each month so that consumers have enough time to send their checks in before missing their payment deadline. When consumers send in payments, credit card companies must apply the payments to the charges with the highest interest rates attached to them first.
Credit card companies weren’t too happy with these changes. Many economists theorized that these companies might try to strike back, and recoup their potential lost earnings, by setting new traps for unwary consumers. Encouraging consumers to only pay minimum balances is one trap to avoid.
Some wonder if credit card companies will increase rates and new fees to their cards in an attempt to generate new revenue streams. Others say that the banks and financial institutions behind credit cards will make it more difficult for consumers to qualify for rewards points. Many card holders rely on these rewards for free airfare and cash-back bonuses. Credit card companies already stung by the Credit CARD Act regulations might try to limit their financial losses by becoming stingier with the financial rewards.
Credit card regulations, though, are an important step toward helping many consumers out of financial messes. Many card holders run into financial trouble when they carry balances from one month to the next. Interest rates on cards are so high that balance can grow quickly if card holders don’t pay it off each month. These tactics won’t be missed at all.
The lesson here? Don’t run up debt on your credit card. And if you do have debt, pay it down as soon as possible.