Credit card companies have been abusing their cardholders for years, encouraging them in bad credit habits and recouping tons of money in fees. In an attempt to curb these practices, President Obama recently passed the Credit Card Accountability, Responsibility, and Disclosure Act (also called the Credit CARD Act, because legislators can be clever too).
The credit card companies aren’t the only ones to blame, though. They got away with their tricky little ways for years largely because the general public didn’t know enough about the way their credit cards worked to keep those abuses from happening. So we’re going to go through the major components of the Credit CARD Act for you, to sort out what exactly is going on with your credit cards right now.
Credit CARD Act: Retroactive Rate Increases
The first item on our list is one of the most important. It used to be that your credit card company could raise your rate anytime they felt like it, for whatever reason. You might have seen this clause in your credit card statement. If you’re anything like me, you thought, “Well, that’s complete bull.” Because it is.
In the best of all possible worlds, your rate would only increase if you were a bad payee. If you were good about paying your bills on time and keeping a low balance, then your interest rate would be low, because you were being so good. If you kept missing payments, your interest rate would go up so the company could recoup their losses. Not fun when you can’t find the money to pay the bills this month, but at least a soupcon of logic is in play there.
That’s not how it worked. You could be the most reliable payer in the world, snatching your bill out of the mailman’s hand just so you could race to your checkbook and pay right this second, and if your credit card company felt like increasing your rate from 10% APR to 14%, they could do that. For no reason.
They could also use your bad practices elsewhere to make up a reason. If you had, say, an American Express card that you were excellent about paying on time, but you also had a car loan for which you’d been late on the payments a few times, American Express could use that as a reason to bump up your interest rate.
And it could stay that way forever. You might be able to negotiate a lower rate, but it wasn’t going to happen automatically.
Under the Credit CARD Act, they can’t do that anymore. Your existing balance is safe from increased rates unless you’re more than 60 days delinquent on that account. Even better, if you are so unlucky as to be unable to pay that bill for 60 days and get the increased rate, the damage is reversible. If you make six consecutive payments on time, they have to give you your old rate back.
This section has a small caveat, since while your old balance is safe from increases, your new balance can still get its rate increased if the credit card company feels like it. The plus side is that they have to give you 45 days advance notice, which means that if you don’t want to deal with the increased rate, you can choose not to use that card in the future and simply pay off the old balance.
There are also a few time limits that didn’t used to be standard: they can’t raise your rates during the first year you have the card (unless, of course, you’re delinquent by the aforementioned 60 days), and any promotional rates have to last at least six months.
That’s to avoid promotions like this: 0% APR (small print: for the first twenty seconds you have the card. After that, we’re hiking it up to 24%. Sucker.)
Tune in tomorrow for more on the new Credit CARD Act and why you should care. (You should care because it’s how you’re going to avoid credit messes in the future.)
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[...] hariboy wrote an interesting post today onHere’s a quick excerptThat’s to avoid promotions like this: 0% APR (small print: for the first twenty seconds you have the card. After that, we’re hiking it up to 24%. Sucker.) Tune in tomorrow for more on the new Credit CARD Act and why you should care. … [...]