New laws went into effect in 2010 that are meant to protect consumers rights from the worst predatory lending practices.
Some provisions in the new regulations will protect you from lenders who arbitrarily raise interest rates or change due dates on your account.
However, to have the protection of the new laws, you must also know what actions are required from you.
Interest Rates
Lenders are now allowed to change interest rates only when a promotional or introductory rate ends or when the credit card user makes a late payment.
Today, lenders must provide 45 days notice in advance of any changes in your interest rate and can increase interest rates on new transactions only after the first year after the account is created.
Cross Default
Lenders are no longer allowed to use cross default as a reason to increase your interest rate if you are late on a payment to another lender. This is a valuable protection for consumers.
Prior to the new rights, if you paid late on your car loan or any other bill, your credit lenders could choose to raise the interest rate on your credit debt.
Lenders can still use the cross default (also known as universal default) to raise the interest or change terms based on your payment record with unrelated accounts but can only charge the higher rate on new purchases. The increase in interest rate cannot be applied to prior balances on the account.
Young Adults
Lenders are now prohibited from issuing credit cards to anyone under the age of 21 unless adult co-signers are also on the account. An exception is made for young adults under 21 who can verify income to pay the account.
Opt Out
You now can reject changes in the terms of your account. If your lender notifies you that your interest rate will change from 19.9% to 24.9% in 45 days, you can close the credit card account and pay off your current balance under the old terms of the agreement. You will have at least five years to pay off that previous balance.
Another important provision in the new rights bill is the ability of consumers to opt out of allowing a purchase on their credit card that will cause them to exceed the spending limit on their account.
That prevents lenders from allowing accounts to rise above the spending limit and keep them from adding over limit fees automatically.
Monthly Bill Requirements
Changing due dates on credit card bills have been a complaint of consumers for several years. Under the new laws, lenders can not set an early morning or other ridiculous deadline for payments.
They can no longer refuse to process online payments made after a 5 pm close of business time or on weekends and cannot charge you late fees for payment made on evenings, weekends or holidays.
Lenders must now provide at least 21 days after your bill is mailed or delivered online before the due date arrives. Previously, lenders often moved the due date from the 25th to the 22nd of the month while sending the ball on the same day each month.
Any change in due dates now must be matched by a change in billing date. This is one of the most important rights extended in the new laws.
High Interest Balances
Perhaps the most predatory lending practice was the ability of lenders to apply all payments to the purchases with the lowest interest rates first.
You may have transfers made the new account at low interest rates and also have cash withdrawals at a much higher APR.
By law, lenders must now apply all your payments (over and above the minimum payment) to the highest interest balances first.
Making Minimum Payments
Lenders must now tell you exactly how long it will take you to pay off your debt on credit cards if you pay only the minimum payment required each month.
They must also give you the amount to pay if you want to pay off your balance in 36 months. This includes the total amount of interest you will be paying.
This is a valuable change in the law as many consumers don’t realize paying only the minimum required each month can harm your credit rating.
When you see how many years it will take you to pay off your balance with minimum payments, you will be motivated to pay off your debt faster.
New Regulation on Gift Cards
Gift cards have increased in popularity in recent years. It is easy to give a gift card on a birthday or other holiday.
The popularity is due to gift cards being widely available and to gifts cards allowing the recipient to buy something he truly needs or wants.
Gif card must now be viable for a minimum of five years and dormany fees can only be added after 12 months of non-use of the gift card.
Summary
Consumers have a considerable increasing in legal protection from predatory lending practices until the new laws. However, the laws don’t cover everything and will not protect you from misuse of credit accounts.
Lenders continue to close dormant accounts and to change spending limits. In addition, limits added to APR have led all credit card lender to change to variable rates of interest. Business credit cards are not included in these new protections.
New rights provide significant protection for consumers but do not replace the need for good financial management practices. Browse our site for more interesting reading, especiall the guide on secured cards and requirements to obtain these plastics.
