New laws on credit card rate increases include when companies can increase rates, what type of notice they need to give, and other restrictions against raising fees. These rules came into effect in February of 2010. Obama signed the Credit Card Act to help protect consumers against increased rates and fees related to their credit cards.
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With the economic downturn in 2007 and 2008, more people began defaulting not only on their mortgages but also on their credit card payments. This sometimes resulted in individuals filing for bankruptcy, which meant that many credit card companies took a big loss. As a result, they started increasing interest rates for current customers, sometimes doubling them. The Credit Card Act was meant to stop or at least control these actions.
Interest Rate Rules
The Credit Card Act, outlined on the Federal Reserve’s website includes a number of rules regarding interest rates. One rule is that your card company must give you a notice of at least 45 days if they plan to increase your rate. This gives you time to pay off your balance, transfer your balance to another card, or accept the changes and be ready for increased minimums.
In regards to interest rates, the Act outlines that your interest rate cannot be increased in the first year of an open account. There are exceptions to this rule, such as if you have a variable rate card, if you have an introductory rate, if your bill is 60 days late, and if you have defaulted on an agreement with the company.
If your credit card company does increase your APRs, the new rate is only applicable to charges that are new. This means that any current balance you have before the increase will be charged with the lower APR.
According to the new rules, if your payment is more than the minimum due the extra will be applied to the amount that has the highest rate. This will help you pay off your card faster.
The Federal Reserve laid out additional credit card rules that became effective in August of 2010. If your company decides to increase your rate, you must be told the reason. If it is increased, the rate must be looked at and evaluated every six months and if it seems excessive, it must be reduced.
Rules for Fees
The Card Act outlines rules relating to particular fees charged by your card company. One is related to going over your credit limit. You have the choice to be able to go over your limit or not. If you choose to do so, your card company can charge you only one fee every cycle of billing.
If your card has an application or annual fee, the fees need to be 25% or less than your credit limit. This rule does not apply to penalty fees. Your company needs to give you a 45-day notice for changes in your fees as well.
In regards to fees, you cannot be charged a late fee of over $25. You also cannot be charged a late fee that is more than what your minimum due is. Your credit card company is limited to charge you only one fee for each transaction and it cannot charge a fee for inactivity of the card.
The Credit Card Act helps protect individuals under the age of 21. If you apply for a card and are not 21, you need either a cosigner or proof that you will be able to pay your credit card bills.
According to the new rules, your card company must inform you about the length of time it will take to bring your balance down to $0, comparing paying just the minimum and what it would take to pay it off in three years. To play around with other monthly payments, check out the debt payoff tool from MyMoney.
Your card company must send your bill 21 days, at minimum, before your due date.
The date should always be the same monthly date and the cut off time for payment received must be 5 p.m. or later the day it is due. The company also cannot charge a two-cycle billing.
These new rules set forth by the government were not meant to prevent credit card companies from making money. They were made to help protect the consumer from being taken advantage of by credit card companies.
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