How the Credit CARD Act Can Work to Your Benefit
The credit card industry is generally seen as one that is entirely under-regulated, where the tables are severely slanted in the creditors’ favor. Those who have run up large sums of credit card debt may feel more like prisoners than consumers.
Certainly, credit card companies have done quite a bit to engender negative feelings from their customers. Followers of the news may have heard about the predatory, arbitrary interest rate increases being foisted upon even good customers. Or the minimum payment plans that kept consumers in debt for years when a very modest increase would have paid off the balance much sooner.
It was in response to these types of vicious practices that the U.S. Federal Government passed the Credit Card Accountability Responsibility and Disclosure (CARD) Act. While it may not be able to cure all the ills in the industry, it is definitely a step in the right direction.
Dirty Tricks Banned by the Credit CARD Act
The CARD Act aims to make sure the credit card companies treat their customers fairly, not just pretend to do so . A number of rules in the act outlaw specific tricky practices that companies have perpetrated in the past. Among the highlights are:
- Consumers now have protection against arbitrary interest rate increases.
- Companiesno longer have the ability to penalize customers who have been paying their bills on time.
- Misleading terms have been nixed. Terms like “fixed rate” and “prime rate” now have strict and set definitions so that customers can know exactly what these things mean without any nasty surprises later on down the line.
- Credit card companies can no longer assess late fees on payments made before the due date, claiming they had not been received and processed by the due date.
- Bills and statements must be sent out a week earlier than they had before.
The CARD Act Curbs Fees
One of the most important features of the CARD Act is its call for the end of excessive penalties and “fee traps” on cardholders. Whereas companies were previously allowed to charge fees on an unlimited number of “over-the-limit” (OTL) billing cycles, companies are now only allowed to charge penalties for three of them. In addition, the creditor is allowed to charge OTL penalties only if the consumer has expressly permitted this practice in the contract. Creditors are no longer allowed to charge OTL fees on accounts that have gone over the limit because of institutional costs like annual fees, account protection plans, and finance charges.
The CARD Act also states that customers have the right to set their own limits on their credit. Companies are now required to give customers the express option of getting a dedicated, solid limit on their credit that they cannot under any circumstances exceed. In addition, these fixed-limit customers cannot be charged OTL fees.
The Credit CARD Act Regulates Fair Practices and Disclosures
According to Title 1, Section 104 of the CARD Act, credit card companies are required to fairly credit and allocate payments. Payments are to be applied primarily to debts with the highest interest rates, particularly on debt accumulated on cash advances. Previously companies typically applied payments to the lower interest debts first, thereby racking up tremendous revenue by allowing higher interest debts to accumulate interest for long periods of time.
Another important feature of the CARD Act regarding payments is that it calls for explicit explanations of minimum payments. Creditors must now detail on their statements how long it is going to take to pay off the debt if only the minimum payment is made every month, and how much the customer is going to end up paying in combined interest.
Additionally, the statement must also show how much you would need to pay monthly to pay the balance off in 3 years and what the total interest would be during that time period. Consumers may be surprised to find that adding just a little bit more to the minimum can make a huge difference.
The Final Verdict
Undoubtedly, the CARD Act is not a guarantee that credit card companies will cease shady practices that generate revenue for them. Several critics, including Diana Ransom from Smartmoney.com, have called for the CARD Act to grow some teeth. While the Credit CARD Act has room for improvement, such criticism misses the main point: before its passage, credit card companies were akin to rogue cowboys that had ample room to take advantage of their customers. Thanks to the CARD Act, there is now a specific set of guidelines for fairer practices, and a legal precedent should Congress feel it necessary to pass further, more stringent regulations.