Credit Card Companies Playing by New Rules

A couple of days ago, the new credit card rules went into effect. To be more precise, the Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD Act of 2009 went into effect. This is truly a game changer for the credit industry and for people who use credit cards.

The cynic in me says the credit card companies will find another way to be “irresponsible” towards consumers, and consumers will find more ways to be dumb with their credit card use. But I try to ignore that voice most of the time, so let's check out these changes and hope for a better tomorrow.

New Credit CARD Act Rules

I've hand selected some of the changes that I think will have the biggest impact:

  • How Your Payments Are Applied – When you pay less than the full balance, your payment will be applied to the balance with the highest interest rate (i.e. purchases vs cash advances).
  • New Information Included on Your Statement – Your statement will now include the following: (1) how long it will take to pay off a balance if only the minimum is paid, (2) how much interest will be paid, and (3) full disclosure of payment due dates and late fees.
  • Applying for a Credit Card Under 21 Years Old – People under 21 years old will need to have their parents sign with them to apply for a card. For this reason, Amex has stated that the phone application is no longer an option for anyone under 21.

Read more about the new credit card rules.

What the CARD Act Doesn't Do

It should be noted that the Act does not set limits on how high your interest rate can go. Rates went up as early as last fall, when the Act first passed. Also, corporate card and business card are excluded from the Act.

How the Industry Will Respond

The Credit Card Industry has made it known that the Act is going to result in higher interest rates and annual credit card fees. Keep an eye out for a 45 day notice of an annual fee. They say they will also lower the credit limit of riskier customer.

On a positive note, American Express, who does credit and charge cards, has developed a special Consumer Resources section on their website where they discuss how the CARD Act will impact Amex users.

Discover Card (currently offering a $50 cashback deal) has information about the CARD Act up on their Financial Education Resources page. And they also created a video explaining the basics of the Act:

What are your thoughts on the CARD Act? Do you care?

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  1. The under 21 rules are interesting. On the one hand companies can’t market the same way to young adults. On the other hand, it makes it harder for responsible young adults to start to their credit history.