Understanding the New Credit Card Laws



Posted: Sunday, November 15, 2009

by
Goldstein and Clegg LLC

Credit cards, if used properly, can be useful and convenient tool, and can even help build a strong credit score that will assist you with future borrowing.  However, owning a credit card makes it easy to spend money you don't have and when the interest is taken into account, consumers can build massive debt.  According to Nilson Report, April 2009, In the average American owed 10,637 in credit card debt.  The U.S. Census Bureau reported that credit card debt is growing and predicted that about 181 million Americans would owe credit card debt by 2010. That figure is up from 163 million Americans in 2008. As a nation we have become a plastic society, using our credit cards instead of actual money in our pockets.  

The Credit card companies understand the temptation that has been provided to their clients and in the past have made it extremely easy for consumers to obtain credit cards.  Recently, these same credit card companies have significantly increased interest rates, decreased spending limits and targeted young consumers with little experience managing their own finances.  In order to combat this practice, the Federal Government has recently passed the Credit Card Accountability, Responsibility and Disclosure Act which will take effect in February 2010.

There are many sweeping changes to the way credit card companies conduct business.  the following are some of the key changes including restrictions on raising interest rates permanently on borrowers who are delinquent 60 or more days. If the Consumer pays on time for 6 straight months, the credit card interest rate must be reinstated to the original lower rate.  

The new law also requires that the advertised low interest rates must have a minimum 6 month period of time and prohibits increased rates in the first year a cardholder has a new account.  This is important because it limits the Consumer's liability on initial purchases.

The law also addresses late fees and penalties for paying your bill by phone, mail, or online and makes it unlawful to access additional fees to accept payments in this way.  In the past, if a consumer wanted to pay at the last minute by phone, they would have to pay an extra fee, which is not lawful any longer.

Finally, the law also includes several measures aimed at protecting young consumers and college students, who until now have been blindsided with offers of easy credit.   The law requires that consumers under the age of 21 will now be required to have co-signers, such as parents or other adults over the age of 21, who will take on joint liability for any card debts that are incurred.   This will essentially end the marketing campaigns on college campuses.  "Young people thrown on college campuses can be extremely vulnerable to these practices," says Brad Lazarus, principal at Omega Advisors, a Chicago financial planning firm.  Some credit card companies offer students nominal gifts, free food or free T-shirts just for applying. But the Credit Card Accountability, Responsibility and Disclosure Act makes this practice unlawful at application sites on or near college campuses.  As an additional protection of the most vulnerable consumers under the new law, credit reporting agencies can't provide the credit reports of under-21 year old consumers to credit card companies unless the consumer specifically requests that they do so.

 

The forgoing article about the Credit Card Act was drafted by Attorney Michael Goldstein for Consumer Debt Radio

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