New Credit Card Protections Taking Effect

Phases of federal legislation known as the CARD Act (Credit Card Accountability, Responsibility and Disclosure), signed by President Barack Obama in May, take effect Aug. 20 that change rules related to notification to consumers.

Credit card issuers must give card holders 45 days notice, up from 15, before any increases to interest rates, fees or finance charges; and before any other significant changes to an account. The present requirement is 15 days.

If you get such a notice, you may shop around for better rates or, under the CARD Act, you are allowed to reject the rate increase by closing down the credit card account. A caveat is that you would have to pay off the balance within five years at your existing interest rate.

There is another consumer benefit kicking in.

Card holders must receive their monthly billing statements 21 days before the due date in order for credit card companies to charge a late fee, rather than the current leeway of only 14 days.

“The new rules of the road established by the Credit CARD Act will shield credit cardholders from widespread abusive practices. New protections will give American families more time to pay their credit card bills every month, and time to shop around for a better deal if their rate is being raised,” U.S. Senate Banking Committee Chairman Christopher Dodd, D-Conn., said in a statement.

Dodd introduced the legislation to Congress.

Credit card companies, however, have been trying to offset likely drops in revenue that would result from the CARD Act provisions by eliminating fixed rates and implementing variable interest rates only; introducing annual fees on cards that did not charge them; and raising other charges such as balance-transfer fees, said Bill Hardekopf, chief executive officer of Lowcards.com and author of the Credit Card Guidebook.

Lowcards.com is a Web site that allows consumers to compare terms and rewards offered by various credit card companies and to keep up to date on credit card industry news.

Hardekopf hosted a live chat with the New Haven Register on Aug. 12 about the legislation and how credit card industry changes affect consumers.

Dodd said the first set of provisions are "important first steps" for American consumers. “Unfortunately, some credit card companies are trying to squeeze their customers before the clock runs out on ‘any time, any reason’ rate increases. These companies will be held accountable for rate hikes when the full Credit CARD Act takes effect.”

The CARD Act will go into effect fully in February 2010.

Dodd has asked Federal Reserve Chairman Ben Bernanke to enforce a provision that requires credit card companies to review accounts every six months if they raised the interest rate. If the credit card holder has improved his or her credit standing and the circumstances causing the increase no longer exist, then companies must reduce the rate.

Click here for a summary of the CARD Act.