New legislation cracks down on credit-card pitches to college students, excessive fees and interest-rate hikes
Written by Mike Barajas
Last Friday in the White House Rose Garden, President Barack Obama signed a landmark bill meant to change the way credit-card companies treat their customers.
The new law, which proponents tout as a credit-card consumer bill of rights, puts heavy restrictions the companies’ ability to jack up interest rates, charge high fees, and market cards to young college students.
The Credit Card Accountability, Responsibility and Disclosure Act (CARD) is an important new piece of legislation that protects consumers against predatory credit-card company practices, said Ed Mierzwinski, Consumer Program director for the consumer advocacy group the National Association of State Public Interest Research Groups.
“This is a major step forward over the hegemony the banks have had over the Congress in the past 20 years I’ve been [in Washington],” he said, after having just attended the Rose Garden signing ceremony on Friday. The new law, he said, “prevents banks from cheating their customers” and stops a number of other consumer tricks and traps.
Speaking at the signing ceremony Friday, President Obama slammed credit-company practices, calling them deceptive and saying that too often “[credit-card] contracts are drafted not to inform but to confuse.”
“Just as we demand credit card users to act responsibly, we demand that credit card companies act responsibly too,” the President said.
The legislation marks a turning point in how the companies treat college students, protecting students against aggressive credit card marketing and even limiting who can get approved for a card. The bill also sets out to change the relationship between colleges and credit-card companies, requiring that any arrangements between universities and those companies be disclosed.
With this bill, Mierzwinski said, “College students are protected from the worst unfair practices.”
The legislation received wide bipartisan support and passed easily through the House and Senate, despite heavy opposition from the banking industry and credit card companies, which have said the new regulations will force them to raise rates and tighten up credit. They say the new law may reduce lending to consumers who need the credit.
Card companies have said the new legislation will also reduce company profits, which will in turn hurt customers because the companies will have to apply higher costs and take away many of the perks long cherished by big spenders.
The concern comes after credit-card companies have already begun to worry about the effect of changing consumer habits on their profit margins during this recession, with consumers spending less and defaulting more often on their loans. Last month, Harper’s Magazine reported in their Harper’s Index that total U.S. consumer credit-card debt fell almost $350 billion from the year before.
Mierzwinski, though, said he doesn’t believe the threats coming from banking and credit card industries, and added, “I think the garbage that banks are putting out, and that they’re going to raise rates on others or their good customers is just that, garbage.”
Though most of the provisions will not go into effect until nine months from now, the new law forces card companies to make these major changes:
No one under 21 can get approved for a card unless they have a parent, guardian, or spouse cosign. If they have their own sufficient income, and can prove it, they’re exempted from the rule. The co-signer must also approve any increased spending-limit increase on the card.
The legislation puts an end to retroactive interest rate hikes on existing credit-card balances, unless a payment is at least 60 days late. In that case, if the following payments arrive on time for the next six months, the company has to restore the card to the original lower rate.
Card issuers cannot increase rates on a card within the first year after an account is opened.
Among the provisions that have to do with billing, companies have to send out bills no later than 21 days before the payment is due, ensuring that customers actually have enough time to send in their bill. Also, if a payment arrives by 5 pm on the due date, it’s on time (no more early morning deadlines). Companies also can no longer charge payment fees, whether by mail, phone or electronic transfer- unless it’s to make an expedited payment.
Customers will not be charged a late fee if a bill’s due date is a Sunday or holiday and the payment arrives one day later.
Banks can no longer arbitrarily “allow” customers to spend more than the credit limit on their card, and then charge them a fee for letting them do so. Companies have to get customer approval before increasing any spending limit.
Companies also must provide cardholders with at least 45 days notice before any interest rate or fee increase. They must do the same for any significant change to the terms of service – for example, no more surprising customers with unforeseen changes in rewards programs after they’ve already saved up points.
Payments that exceed the monthly minimum must go to pay off the highest interest rate first if cardholders have different interest rates applying to separate debt on a card.
Companies are required to disclose how long, and how much in interest, it will take to pay off a card balance if only minimum monthly payments are made.
Promotional rates that companies offer have to last at least six months.
Companies have to post card agreements on the internet, and provide those agreements to the Federal Reserve Board to post on its website. The bill also calls for the Federal Reserve Board and the Federal Trade Commission to review the consumer credit card market and look at terms of agreements and company practices.