How do new credit card laws affect customers?

With the President signing the new Credit Card Act of 2009 into law, how will your credit habits change—or will they?

It is said that thanks to these sweeping regulatory changes, many consumers can now avoid sudden, unprovoked increases in rates on their existing balances and will find more time to pay their monthly bills. Let us take a look at the highlights of the new laws.

The new law allows hikes in interest rates on existing balances only under limited conditions. This could come into play when a promotional rate ends, or if a cardholder makes a late payment (typically 60 days past due).

For any new transactions, the interest rates can increase only after the first year. Additionally, any significant change in the terms of an account must be communicated to the consumer via a 45-day prior notice of the mentioned change.

The due date for credit card payments must now be the same day for all months, and a notification of the bill must be mailed or delivered at least 21 days in advance of the due date.

Crucially, payments made by customers in excess of the minimum payment will automatically go towards the highest interest rate balance first in order to pay it off faster, rather than the lowest rate balance.

Credit card companies will now be required to use simple language on all materials related to a customer's account.

At periodic intervals, they must clearly display on the statements the exact time customers would require to pay off the debt if they made only the minimum payment each month. The statement must also contain information on the total interest charged if the customer only makes the minimum payment on their dues.

According to the new law, customers will no longer be enrolled in an overdraft program automatically. They will have to express the desire by affirmatively opting to be enrolled in one.

Hence, if any cardholder exceeds the limit on their card, the transaction will simply be declined at the register, unlike under the old rules where the consumer could still transact but would be hit with steep over-the-limit fees.

Individuals under the age of 21 looking for credit cards must now show verifiable proof that they have the independent financial means to pay off their cards, or they must get a co-signer (like a parent or guardian) before they can be issued a card. This aims to protect college students from predatory lending.

The deceptive two-cycle or double-billing cycle model is being entirely done away with. Finance charges will now be computed strictly based on purchases made in the current billing cycle, instead of going back to the previous cycle in order to calculate the interest charges.

If you hold a "subprime" or "fee-harvester" credit card (cards aimed at those with bad credit), creditors can no longer charge more than 25% of your available credit limit in upfront fees during the first year of the card.

What credit card holders must remember here is that these laws do provide them some relief and transparency, but they do not protect them from everything. Although creditors need to give customers a 45 days notice before increasing their rate, the new law has not put any cap on the percentage of hike that creditors can levy. So, no matter what the laws are, make sure you use your credit card wisely so that you don’t run up debts you cannot manage to pay back.