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New regulation on credit cards offers consumer protection.

Posted on | May 21, 2009 |

The U.S. Senate passed a bill Tuesday aimed at providing increased consumer protection by imposing stricter regulation on the credit-card industry.

The bill is known as the “Credit Cardholders’ Bill of Rights Act of 2009″ and here’s a quick look at what it does:

Rate changes and account management.

  • Allows a creditor to increase an APR on the existing credit card balance only if the increase is due solely to:
  1. a change in index.
  2. expiration of the promotional rate.
  3. payment not received during the 30-day grace period after the due date.
  4. consumer failure to comply with a workout plan.
  • Requires a 45-day advance notice of:
  1. credit card account rate increases, except one resulting from a change in index
  2. significant contract changes.
  • States that a promotional rate APR shall be effective for a six-month period beginning from the date the promotional rate takes effect.
  • Requires a creditor to provide a 30-day advance notice of an account closure.
  • Requires a creditor to remove information furnished to a consumer reporting agency concerning establishment of a newly opened credit card account if the consumer:
  1. has not used or activated the account
  2. contacts the creditor within 45 days of its establishment to close it.

Billing and statements

  • Prohibits imposition of a double billing cycle as a result of the loss of any grace period.
  • Prohibits the imposition of a fee on an outstanding credit card balance, at the end of a billing period, that is attributable only to interest accrued during the preceding billing period on an outstanding balance fully repaid during that preceding billing period.
  • Requires each periodic statement of account to provide the toll-free telephone number, Internet address, and website at which the payoff balance may be requested.
  • Declares that any payment beyond the required minimum payment shall be allocated first to the balance with the highest APR.
  • Prohibits a creditor from denying a cardholder a specified payment grace period if the cardholder takes advantage of a promotional rate balance or deferred interest rate balance.
  • Requires creditors to send a periodic credit card statement of account to the consumer at least 21 calendar days before the due date for the next payment on the outstanding balance.
  • Prohibits a creditor from treating as a late payment the receipt of a periodic payment by mail as of the creditor’s next business day if the date established by the creditor as the payment due date is a day on which mail is either not delivered or is not accepted by the creditor for processing.

College and high school students.

  • Prohibits extensions of credit to consumers under age 18, unless they are emancipated under state law, or the consumer’s parent or legal guardian is designated as the primary account holder.
  • Limits the maximum amount of credit which may be extended to a college student for whom no one else assumes joint liability to the greater of:
  1. 20% of the student’s annual gross income
  2. $500. Limits the aggregate credit limits of all such credit cards to 30% of the student’s annual gross income in the most recently completed calendar year.
  • Requires:
  1. parental approval to increase credit lines for accounts for which the parent is jointly liable
  2. a creditor to require adequate proof of income, income history, and credit history before any college student credit card account may be opened by or on behalf of a student.
  • Prohibits a creditor from opening a credit card account for any college student who:
  1. has no verifiable annual gross income
  2. already maintains a credit card account with that creditor, or any affiliate.

Fees and Minimum payments

  • Prohibits a creditor from imposing a fee based on the manner in which payment on the account is made.
  • Revises and expands requirements for mandatory minimum payment disclosures which a creditor must furnish.
  • Prescribes a minimum type-size and font requirement for credit card applications and disclosures.
  • Prohibits the charge of an over-the-limit fee unless the consumer permits the creditor to complete the relevant transaction (opt-in).
  • Allows imposition of an over-the-limit fee only once during a billing cycle.
  • Prescribes a standard for the initial issuance of subprime or “fee harvester” cards (accounts requiring first-year fee payments in excess of 25% of the total amount of credit authorized).

Read the full details of the bill here.

This is just past the senate hurdle, and hence not yet a law so things may change. Still, I think it’s a big step in the right direction!

photo by Andres Rueda

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Comments

2 Responses to “New regulation on credit cards offers consumer protection.”

  1. Citibank Credit Card Holders Get a Rebate (and Why it's a Bad Deal)
    November 27th, 2009 @ 7:26 am

    [...] industry’s mad dash to ensure their income from fees and rates doesn’t suffer when the “Credit Cardholders’ Bill of Rights Act of 2009″ comes into full effect in February [...]

  2. Credit Card Mailings Rise To Highest Level Since December 2008.
    December 7th, 2009 @ 7:46 am

    [...] While the volume of credit card offers is still significantly lower than in the recent past, this up tick could mean that credit card companies are feeling more optimistic about the future, and we could see this trend increase even through the February implementation of the “Credit Cardholders’ Bill of Rights Act of 2009″. [...]

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