New credit card rules kick in Feb. 22
Credit card customers should have an easier time with billing, interest rates and navigating what has been some confusing fine-print, as a result of new rules that go into effect next month.
The Federal Reserve this week released information about the changes described as "sweeping new rules to empower consumers as part of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009."
When President Obama signed the bill into law in May, he said the rules mark a turning point for American consumers by ending unfair rate hikes and hidden fees, although he noted that consumers remain responsible for paying their bills.
Nationwide, consumers had complained that credit card contracts and practices have been unfairly and deceptively complicated, often leading consumers to pay more than they would reasonably expect.
Every year, Americans pay an estimated $15 billion in penalty fees. Nearly 80 percent of U.S. households have a credit card, and 44 percent carry a balance on their credit cards.
Consumers should be reading their mail from their credit-card companies to see how they are affected. Even though nationally some banks lobbied against the rules, the law requires that consumers be told of the changes.
Locally, Curt Otaguro is executive vice president of First Hawaiian Bank in charge of the bank's card services group, which is the largest local issuer of credit cards, and he welcomes the new rules.
"We think it's a good thing," Otaguro said, because the required disclosures help customers with clear rules.
"I think it's positive for the consumer because it would give them some choices on how they will manage their credit card accounts."
First Hawaiian has issued more than a half a million credit cards through-out Hawai'i, Guam and Saipan. "It hasn't been a dramatic change for us," he said.
Nationally, credit card companies drew complaints about pricing and hidden fees. But Otaguro said First Hawaiian has worked to be consumer friendly.
Some of the key improvements are clear rules about what happens when a customer goes over a credit limit. In the past, the companies might cover the purchases' costs but then charge huge fees for having done so. The new rules require customers to make a choice.
Otaguro said there could be some risk of embarrassment if a customer opts out of the coverage, then needs to use it while traveling or for an emergency purchase.
Another change is that credit card statements will be standardized so that the first pages from different companies will look very similar, with account balances, line of credit and payment information all clearly stated.
"These rules — the most comprehensive ever seen — herald a new era for America's credit card customers," said Kenneth J. Clayton, senior vice president and general counsel for ABA card policy.
"Many practices that frustrated customers have been eliminated, and credit card users will now benefit from greater control and clearer terms for their accounts."
Some highlights of the new law are aimed at ending confusing billing practices by creating new rules that are easier to understand.
Here's more information from the Federal Reserve:
• Your credit card company must send you a notice 45 days before it can: increase your interest rate; change certain fees (such as annual fees, cash advance fees and late fees) that apply to your account; or make other significant changes to the terms of your card.
• If your credit card company is going to make changes to the terms of your card, it must give you the option to cancel the card before certain fee increases take effect. If you take that option, however, your credit card company may close your account and increase your monthly payment on the balance still due.
• Financial institutions may no longer raise interest rates on the existing balance if a consumer pays a few days late.
• The rules ban rate increases on existing balances under what has been an "any time, any reason" policy or "universal default," and severely restrict retroactive rate increases because of late payment.
• Institutions will have to give cardholders a reasonable time to pay the monthly bill — at least 21 calendar days from date of mailing. The act also ends late-fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
• Credit card companies will be required to apply excess payments to the highest-interest balance first, as many consumers expect. The act also ends the confusing practice in which issuers use the balance in a previous month to calculate interest charges on the current month, so-called "double-cycle" billing.
• Young people who use credit cards will be protected by additional rules. Customers under 21 years old will be required to show they have the means to pay off their debt or have a co-signer; and the new law restricts the marketing of credit cards on college campuses.
The rules take effect Feb. 22, nine months after the president signed the law.
Later this year, in July and again in August, more rules will take effect, to improve disclosures to customers and provide other consumer protections.