New rules for credit card companies took effect Thursday, the first in a series of measures designed to protect consumers from changes to the terms of their card agreements. Jeffrey Brown gets perspective from a consumer advocate and a banking industry representative.
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The first of the new rules Congress passed in May took effect today. Among other things, they require that credit card issuers notify consumers 45 days before an interest rate hike or "significant change" to a contract's terms; mail bills out at least 21 days before payment is due; and allow cardholders to refuse a rate hike, choosing instead to pay off a balance at the old rate.
Additional provisions of the law will take effect in February. We assess what all this means now with Nessa Feddis, vice president and senior counsel with the American Bankers Association and Adam Levin, chairman and founder of Credit.com, a consumer education and advocacy group. He's former director of New Jersey's consumer affairs division.
Well, Adam Levin, what's the most important change here from a consumer protection standpoint? And will these changes help consumers?
ADAM LEVIN, Credit.com:
Well, I think that some of the critical changes in the bill have to do with the inability to raise rates on existing balances other than in very specific situations that are either directly related to a consumer or relate to a variable rate card, the fact that over-limit fees can't be charged unless consumers actually opt into it in advance, the fact that we're seeing the end of universal default and double-cycle billing, and the fact that we're going to be…
Explain — I'm sorry — explain the universal default for people.
Universal default is basically, if something negative were to occur to a consumer with another credit card or in another particular financial situation, that a credit card company could point to that and immediately jump a rate from, let's say, a 15.99 percent rate up to a default rate, based on the perception that there is something negative occurring throughout the entire credit history of this particular consumer and it may relate to a specific incident. It may relate to just one missed payment on one card, and suddenly the entire financial situation collapses in on the consumer. That's not fair.