New credit card rules take effect February 22, 2010, and information will be covered in two articles. Let's take a look at how key points in the new law will affect you, the consumer.
New rules on terms and interest rates
Card issuers must give you 45 days notice before they can:
- raise the card's interest rate.
- make changes to certain fees (such as annual fees, cash advance fees, and late fees)
- make other significant changes to the terms of your account.
If you don't like the new interest rate, fees, or terms, you have the right to refuse the change. You have 3 billing cycles after the rate increase to say no to the new terms.
You or the card issuer may cancel the card if you refuses the change. You can then pay off your existing balance at the existing interest rate, but the card issuer may change the amount of the minimum payment in order to speed up the repayment schedule. For example, the card issuer may require minimum payments that are twice the previous amount, or they may require you to pay off the balance within five years.
If the card issuer raises your card's interest rate and you accept the new rate, that higher rate will only apply to new charges. If you have a balance, your old interest rate will apply to that balance.
Interest rates cannot be raised within the first twelve months of opening an account, unless the rate increase was disclosed when the account was first opened. Card issuers will be prohibited from arbitrarily changing the terms of their contract with cardholders, putting an end to the so-called "any-time, any-reason repricing."
Card issuers do not have to give 45 days notice to cardholders if:
- you have a variable rate tied to an index; if the index goes up, the company does not have to provide notice before your rate goes up
- your introductory rate expires and reverts to the previously disclosed "go-to" rate
- your rate increases because you are in a workout agreement and you haven’t made your payments as agreed
Cardholder statements will show how long it will take to pay off your balance.Your monthly credit card bill will include information on how long it will take you to pay off your balance if you only make minimum payments. It will also tell you how much you would need to pay each month in order to pay off your balance in three years.
For example, suppose you owe $3,000 and your interest rate is 14.4%--your bill might look like this:
New balance $3,000.00
Minimum payment due $90.00
Payment due date 4/20/12
Late Payment Warning: If we do not receive your minimum payment by the date listed above, you may have to pay a $35 late fee and your APRs may be increased up to the Penalty APR of 28.99%.
Minimum Payment Warning: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance. For example:
Only the minimum payment 11 years $4,745
$103 3 years / $3,712
(Savings = $1,033)
Example source: U.S. Federal Reserve Board