Credit Card Rules Part 2 - Payments, Billing, Fees, and Restrictions
This article is a continuation of credit card Rules Part 1. Here's a look at key changes you can expect when the new credit card rules take effect February 22, 2010.
Rules about once-common practices that penalize cardholders who pay their bill on time
Card issuers will be prohibited from charging interest on debt that is paid on time. The "double-cycle billing" practice penalizes cardholders for carrying a balance in past months even if they paid off their balance in the most recent months, and will no longer be allowed.
Retroactive rate increases are banned - on existing balances on accounts in good standing - for reasons unrelated to the cardholder's behavior with that card. This practice is known as "universal default" and has been popular in recent times with a number of card issuers; in the end, the cardholder is essentially being punished by multiple issuers for a late payment to one issuer. Universal default will no longer be allowed.
New rules regarding billing and how payments are directed
Card issuers will be required to mail billing statements 21 calender days before the due date to give cardholders enough time to get their payments sent out in time, giving cardholders an extra week's notice to pay their credit card bill. Currently, card issuers only have to send statements out 14 days in advance of the due date.
Payments received on the due date before 5 p.m. Eastern Standard Time will be considered to be timely. This prevents an issuer from requiring an early morning payment on the due date and calling your payment late because the mail comes in the afternoon. Cardholders will no longer have to keep track of odd due date times set by individual card issuers or figure out which time zone the issuer's payment processing center is in.
The payment due date will be required fall on the same date each month. If the due date falls on a weekend or legal banking holiday, the due date will be pushed to the next business day after the normal due date. So, say your payment is due on the 15th - which happens to fall on a Sunday in a particular month. The next business day, the 16th, will then be the due date for that month and will be considered "on time" as long as it received by 5 p.m. EST.
Card card issuers are prohibited from charging late fees on a payment when a cardholder presents proof of mailing his or her payment within 7 days of the due date. To "present proof," the cardholder would need to send their payment by certified mail and get a receipt at the post office, or if using online bill-pay with their bank or credit union, print off a transactions statement.
Payments made in excess of the minimum payment will be applied to the highest interest balance first. For example, say there's a $20 minimum payment and the cardholder has a $500 purchases balance and a $500 cash advance balance. If the cardholder makes a $200 payment, the extra $180 will be applied to the cash advance balance since it carries a higher interest rate.
There is an exception to rule "highest balance first" rule
If you made a purchase under a deferred interest plan (for example, "no interest if paid in full by March, 2012"), the credit card company may let you choose to apply extra amounts to the deferred interest balance before other balances. Otherwise, for two billing cycles prior to the end of the deferred interest period, the credit card company must apply your entire payment to the deferred interest rate balance first.
Restrictions on fees for sub-prime cards
If your credit card company requires you to pay fees (such as an annual fee or application fee), those fees cannot total more than 25% of the initial credit limit. For example, if your initial credit limit is $500, the fees for the first year cannot be more than $125. This limit does not apply to penalty fees, such as penalties for late payments.
Restrictions on credit cards for underage consumers
To obtain a credit card, consumers under the age of 21 will be required to prove that they have income to support repayment, or they will have to have a co-signer. Credit limit increases will be handled the same; the cardholder will need to provide income documentation or get the approval, in writing, of their co-signer to get a higher credit limit.
Restrictions fees on "over the limit" transactions
You must tell your credit card company that you want it to allow transactions that will take you over your credit limit. Otherwise, if a transaction would take you over your limit, it may be turned down. If you do not opt-in to over-the-limit transactions and your credit card company allows one to go through, it cannot charge you an over-the-limit fee.
If you opt-in to allowing transactions that take you over your credit limit, your credit card company can impose only one fee per billing cycle. You can revoke your opt-in at any time.
Federal Reserve Board