The CARD Act, signed into law last May and taking effect in February, brings welcome changes to credit card practices, but doesn’t cover everything.
One of the most welcome changes is an end to retroactive rate increases. Unless you’re 60 days late with payment, or have chosen a variable rate card, your credit card company won’t be allowed to change the interest rate on balances you already owe.
This is welcome news to card holders who saw interest rates jump from under 10% to nearly 30% over the past few months. However, it doesn’t affect changes already made.
What it doesn’t change is the bank’s right to change interest rates on your future purchases. They do have to notify you 45 days in advance of the change, so you do still need to read all your mail and take heed.
In addition, credit card issuers will still be allowed to set any interest rate they want, and completely ignore State usury laws. Through a series of actions by Congress over past years, banks were given loopholes that made them exempt.
One relief offered in the CARD Act is fairer payment allocation. So if you do forget to check and do make a purchase under a new, high interest rate, you will now have the opportunity to pay off that balance rather than having it “buried” behind any low interest balance you may have.
There is a catch, however. Your minimum payment will go first to the month’s interest, then to your low interest balance. It is only the amount you pay above the minimum that will apply to your high interest balance. In other words, if you want to pay it off, you need to increase your monthly payment.
Another practice that was not eliminated is the arbitrary reduction in your credit limit. Card issuers will still be allowed to do this – and with no notice to you. The only relief offered in the CARD Act is that they will no longer be allowed to drop your limit below your outstanding balance, triggering an over limit fee.
Card holders who wish to avoid over limit fees can opt not to have them – by telling their card issuers to refuse any charges that would take them over the limit. If card users do elect to allow over limit fees, they cannot be charged for more than one per cycle.
Author: Mike Clover
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