CARD Act Protections Come With Loopholes

While the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the  CARD Act) placed restrictions on credit card issuers, it left enough loopholes to get unsuspecting cardholders in trouble.

For instance, according to the CARD Act, your credit card issuer cannot raise the interest rate on your existing balances unless you’ve been 60 days late with a payment, or when a promotional rate expires.

However – in addition to imposing a penalty fee for missed payments and overlimit violations, they are free to penalize you by raising the interest rate on all your future purchases. In fact, they can raise your rate on future purchases for no reason except that they want to do so.

They are required to notify you 45 days before charging that new higher rate. That should give you time to get your mail and discontinue using the card well before the new rate goes into effect. But… that requirement isn’t quite as it seems. Any new charges accrued 14 days after the bank sends the notice can and probably will be subject to the new rate. The loophole: They can’t bill you at the new rate until the 45th day.

So if you’ve been late with a payment – even by one hour – or if you’ve gone over your credit limit, stop using the card immediately. Otherwise, you may find yourself paying as much as 39.9% on any new purchases. In fact, it could be more, because the CARD Act did not impose any limits on the interest rate that credit card issuers could charge.

If you have gone over limit and been hit with a fee, do ask for proof that you opted in to over limit protection. Issuers aren’t allowed to assess an overlimit fee unless you’ve agreed to allow transactions that exceed your credit limit. Of course, the alternative is that your card would be rejected at check-out. But you do have a choice.

If you’ve been a faithful credit card user, making payments on time for years and never going over your limit, you could be justifiably angry if they penalize you for being two hours late with a payment.

It might even make you angry enough to cancel your account. But do think twice before you do that.

Your card issuer can’t require you to pay in full at the time of cancellation, but they can double your minimum payment percentage or require you to pay off the balance within 5 years. And of course, loss of a credit line will be damaging to your credit scores.

The CARD Act promised protections, but it’s just as important as ever for consumers to use their credit cards wisely and to avoid going over credit limits or making late payments.

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