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What Congress’ Credit Card Regulations Could Mean for Cardholders, Companies

Here are some highlights about what the House and Senate bills could mean to cardholders and the banks:

Prevents most rate increases on existing balances

A credit card company could raise the interest rate on a cardholder’s existing balance only in the case that he or she is 60 days behind on payments or in several other specific instances.

Mandates 45 days’ notice for rate increases, contract changes

Credit card companies would have to give cardholders 45 days’ notice if they plan to increase their interest rates or implement new fees. The measure would give cardholders time to pay off or transfer their balances and shop for another card.

Cardholder agreements would be written in ‘plain English’

The new regulations would dictate what size font and what kind of language credit card companies can use to explain their terms of business to cardholders. The agreements must be written in plain English and posted online. The Federal Reserve would occasionally check companies’ business practices to make sure they are in order.

Highest interest paid off first

Some credit card companies apply payments to a cardholder’s balances with the lowest interest rate first, making it tough to pay off high-rate debt. The bill would apply a cardholder’s payments in excess of his or her minimum payment proportionally to the entire balance or be applied to the balance with the highest interest rate first.

Rewards good behavior

If a cardholder has had his or her interest rate raised for a missed or late payment, the Senate’s version of the bill would require the company to lower readjust the rate if payments have been made on time for six months.

Establishes more cardholder-friendly due-date rules

Card companies would have to mail bills at least 21 calendar days before the due date, up from the current 14 days. Payments would be credited as on time if they are made before 5 p.m. on the due date, which could be extended to the next business day for mailed payments when the due date occurs on Sundays, holidays and other days that companies don’t receive or process mail.

Curbs ‘over-the-limit’ fees and charges for phone and Internet payments

Cardholders would be allowed to set a fixed credit limit for themselves, and companies would be prevented from charging “over-the-limit” fees if the cardholder has set that limit. Also, companies couldn’t charge a fee for payments received over the phone or online. Companies could only charge penalties that are “in line with actual harm” done to them.

Tougher for young people to get credit cards

The House version of the bill restricts card companies from issuing cards to minors who are not emancipated from their parents. The Senate version would restrict marketing to young adults and require an evaluation of their income or require a cosigner.

Fewer gift card restrictions

Consumers would no longer lose value on gift cards for not using them up to a year. Also, they could not expire for at least five years.

Timing of when regulations go into effect

Some of the changes were on track to take effect in July of 2010 under new regulations by the Federal Reserve but for the most part, lenders will have nine months to institute the reforms.

“The only part of any of the bills that would take effect sooner would be the requirement that card companies give borrowers 45 days’ notice before increasing the interest rate,” Washington Post reporter Nancy Trejos wrote in an online discussion about the new regulations. “I’m afraid people who are already in debt right now won’t get much relief. There’s speculation that the card companies will take advantage of the next 9 to 12 months and keep hiking up rates and slashing limits. Others think they will realize how bad a PR move that would be and comply with some of the rules beforehand.”

Reaction from credit card companies

Credit card companies have threatened to make up for the revenue they stand to lose by adding annual fees to more cards, cutting rewards programs and limiting promotional interest rates. Industry representatives say the amount of available credit will decrease significantly. “Less credit will be available generally, which means some consumers and small businesses will not be able to obtain credit cards at all, particularly younger people and startup small businesses,” said Edward Yingling, president and CEO of the American Bankers Association.

New York Times personal finance columnist Ron Lieber offered this insight on the companies’ warnings: “My guess … is that this talk is just so much saber-rattling.” Click here to watch his explainer about the new regulations.


Compiled from U.S. House, U.S. Senate, New York Times, Washington Post, NPR

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