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What you need to know about the Credit CARD Act

By Andrew Housser

Back in May, the U.S. Congress passed the Credit CARD (Card Accountability, Responsibility and Disclosure) Act to regulate how credit card lenders can charge and communicate with consumers. Most of the law's provisions will not go into effect until February 2010. However, a few of the law's provisions took effect in August. Here is what you need to know to understand how the law affects you -- now and in 2010.

What to know now:

• Beware of bank fees. Some experts estimate that bank fees will increase by as much as 50 percent as banks attempt to make up for lost revenue after the CARD act takes affect. Read through those fine-print fee disclosures your bank, credit card lender or credit union sends occasionally. If a notice alerts you to a fee you disagree with, read on to see if you can opt out of the fee. If fees are serious enough, you might wish to consider changing your account to a different financial institution.
  
  
• Watch your rates. The new law places restrictions on how much credit card companies can raise interest rates. That means lenders are raising rates now, while they can. Previously, lenders could raise interest rates at any time. One of the CARD Act's first provisions, which took effect in August, said lenders can only raise rates with 45 days' notice to the card holder. A card holder can avoid paying higher rates by closing his/her account. However, if card holders use the card more than 14 days after the notice is sent, the higher rates will apply to those charges.
  
  
• Longer turn-around for payments. As of August, card holders must allow at least 21 days from when they mail a bill for the payment to be due. That means it will take longer before late charges can begin to accrue, and you have a more reasonable time frame in which to pay. Also, a credit card bill's due date will be on the same date each month.

What to know this month:

• Educational credit information. Soon (Nov. 22), the Federal Reserve Bank will issue guidelines on a toll-free number for credit counseling assistance and will report to Congress about financial literacy programs. If you are facing deep debt, watch for news about new ways to get help.

What to know later:

• Some relief on late payments. The CARD Act requires card issuers to wait until payments are 60 days late before charging penalty interest rates. Chronic late payers will still face higher interest, but well-intentioned borrowers whose payment was credited a day late will no longer suffer the consequences, beyond a possible late fee. Penalty interest rates will only apply to new purchases, not to existing balances. Additionally, if you pay on time for six months in a row, the interest rate must revert to the original rate. And card issuers cannot raise interest rates on their card just because you were late on another card.
  
  
• No cards without co-signers for young borrowers. By February, no longer will college-age students age 18 and up be able to open a credit card account alone. Instead, borrowers under 21 will need a co-signer or proof of sufficient independent income to repay debt up to their credit limit. And many card issuers will be ejected from college campuses, where they can no longer give gifts in exchange for card applications.
  
  
• Not so easy to go over-limit. Credit cards cannot be charged over the credit limit unless card holders have requested that the account be allowed to go over-limit, with accompanying over-limit fees.
  
  
• Two-cycle billing is out. Two-cycle billing means monthly finance charges are based on the average balance in each of the two past months. That practice no longer will be allowed.
  
  
• Ability to repay will be considered. Lenders must consider a borrower's ability to repay the debt before approving a card or raising credit limits. This will help borrowers stay within healthy debt limits, but it also is likely to limit credit available to consumers.
  
  
• Highest rate balances paid first. Credit-card issuers will credit payments in excess of the minimum amount against the highest-rate balance. So, if you have a cash advance that carries a 22 percent interest rate, and a purchase that carries a 10 percent interest rate, any amount you pay above your minimum payment will be credited against the cash-advance balance. (Currently, credit card companies credit such payments against the lowest-rate balance.)

Overall, the new law offers important consumer protections. While some individuals will find it a bit harder to get credit, the good news is that credit card issuers are dealing more fairly and openly with all customers. Take a cue from the law to build a healthy financial profile today and in 2010.