3 Biggest Implications of the CARD Act |

Beginning August 20th, there are new rules taking effect that will have some big implications for credit card issuers and credit card holders. The Credit Accountability, Responsibility, and Disclosure act is a series of new rules put in place to protect consumers from abusive practices on the part of credit card companies. The legislation comes in response to credit card companies scrambling to reduce risk and increase revenue from fees and interest charges as late payments and defaults increased steadily during the recession. There are three main implications that go into effect immediately, and others that will be enacted over the course of the next year.

– 45 Days Notice For Rate Changes: Until now, credit card companies only had to provide 15 days notice before changing interest rates, and they could adjust rates immediately if a customer was late on their payment. Many customers found interest rates jump to their highest allowable level the moment they had a late payment, in some cases seeing rates jump by more than 20 percentage points overnight. This new rule will make it more difficult for card companies to alter interest rates on their customers.

– A minimum Grace Period of 21 Days: The grace period for a credit card refers to the period of time between the end of a billing cycle and the payment due date. In many cases previously, bills and statements were sent out on the first of each month and due on the fifteenth, giving consumers a very short window of time to make their payment. Several large banks that issue credit cards have already been giving cardholders 21 days to make payments, but this regulation will make that a standard requirement in the industry.

Consumers Can Opt Out Of Rate or Fee Changes: In one of the biggest changes made under the CARD Act, credit card issuers are required to give all customers the right to opt out of rate and fee changes. Previously, customers carrying a monthly balance didn’t have a choice about paying rates that had been adjusted higher unless the card issuer offered opt-out privileges. This too will now be a standard practice. Consumers carrying a balance can close their accounts and continue making payments without seeing a rate increase. Consumers should be aware that falling behind on payments by more than 60 days will allow card issuers to raise rates at their discretion.

In February, another set of new rules will take effect that will include a rule against marketing credit cards to young adults and college students which was previously a big target market for credit issuers. In July of 2010, less than a year from now, yet another new set of rules will take effect that require specific disclosures on rates and fees on all advertising and mailing dealing with credit card offers, among other changes. The next year will bring big changes to the entire credit card industry and will require credit card issuers to alter their business models to be in compliance with the CARD Act and other new legislation designed to protect consumers.