Break out the party favors and get ready to celebrate: The last significant provision of legislation restricting credit card companies' practices takes effect Sunday.
The Credit Card Accountability Responsibility and Disclosure Act was signed into law by President Barack Obama in May 2009 and scheduled to take effect in three phases.
The latest installment:
• Requires penalty fees to be "reasonable and proportional to the omission or violation."
• Prohibits credit card issuers from charging a penalty fee of more than $25 for paying late or other violations of the account's terms unless the cardholder has "engaged in repeated violations or the issuer can show that a higher fee represents a reasonable proportion of the costs it incurs as a result of violations."
• Requires that creditors periodically review all interest rate increases since January 2009 and reduce rates when "warranted."
(This one could be tricky. As John Ulzheimer, president of consumer education at Credit.com, notes, "That's open to interpretation." )
• Limits dormancy, inactivity and service fees associated with gift cards. New gift cards also can't expire for at least five years. The five-year period begins either on the date the card was issued or the last date funds were loaded onto the card.
• Prohibits card issuers from charging penalty fees that exceed the dollar amount associated with the consumer's violation.
For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee can't exceed $20.
The first phase of the law took effect on Aug. 20, 2009, and included the requirement that credit card issuers give you 45 days' advance notice regarding significant account changes or changes in interest rates.
The second phase, which took effect Feb. 22, contained the meatiest part of the law. That phase:
• Prohibits card issuers from imposing arbitrary interest rate increases and universal default on existing balances.
Under a universal default policy, the credit card company can increase your interest rate if it discovers a late payment for any other debt on your credit report.
• Prohibits card companies from charging over-limit fees unless the cardholder elects to allow the issuer to complete over-limit transactions.
It also limits the fees charged cardholders who have allowed over-limit transactions.
• Requires that payments above the minimum monthly payment be applied first to the credit card balance with the highest rate of interest.
This is an added incentive for consumers to pay as much above the minimum payment as possible.
• Prohibits issuers from setting early morning deadlines for credit card payments;
• Prohibits double-cycle billing, in which the average daily balance is calculated based on two billing cycles rather than one.
• Requires issuers extending credit to people under age 21 to obtain an application signed by a parent, guardian, or other adult over age 21 who will take responsibility for the debt, or proof that the young person has an independent means of repaying the credit.
• Requires the credit card company to tell you why it's raising your annual percentage rate.
These are all good changes that provide badly needed protections for us consumers.
Still, the best action you can take is to pay your bills on time.
As Ulzheimer said: "Don't throw it into the bank's court where they have judgment and get to determine what's 'warranted.' "
Written by Pamela Yip/DallasMorning News
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