We all have a love/ hate relationship with credit cards. When credit cards are used responsibly, they are the best thing since sliced bread. They are good for emergency situations, like a car that needs immediate repair. They’re also great for traveling because if you lose your card or it gets stolen, it is easier to dispute unauthorized charges and plus those unauthorized charges won’t wipe out the money that’s needed to pay the bills.
We start getting into trouble when we use credit cards because we can’t live without the flat screen TV or because we want that outfit even though we have a king size closet full of clothes. There are responsible steps that we can take such as not charging more than we can pay off each month and limiting the amount of credit cards we have along with their credit limits.
I want to focus more on the responsibilities of the credit card companies. There was legislation passed in 2009 that will help prevent some of the bad practices that credit card issuers have used in the past. Here are some of the highlights of the Credit Card Accountability Responsibility and Disclosure Act.
Prior notice of rate increased required: Prohibits applying rate increases retroactively to existing balances.
Freeze on interest rate terms and fees on canceled cards: Prevents APR’s from being raised and prepayment terms from being cancelled if a cardholder cancels a card.
Limits of fees and interest charges: Cardholders have the option of getting a fixed credit card limit that cannot be exceeded. The credit card companies cannot charge over the limit fees on cardholders with a fixed limit. It also prevents credit card companies from charging a fee to allow credit card holders to pay their credit card bill.
Use of terms clarified: Prohibits the credit card companies from using the terms “fixed rate” and “prime rate” in a misleading way.
Application of card payment: Requires payments to be applied to the balance with the higher interest rate first. Prevents card companies from setting early deadlines for payments.
Length of billing period: Requires the credit card statements to be mailed at least 21 days before the bill is due. It is currently 14 days.
Prohibits on universal default and unilateral changes to cardholder agreement: Prevents credit card companies from increasing interest rates on cardholders in good standing for reasons unrelated to the cardholder’s behavior with respect to the card.
Payoff timing disclosures: Requires the credit card company to disclose the period of time it will take the cardholder to pay off the card balance if only the minimum monthly payments are made. Also, the statement will disclose how much interest you will pay if you only pay the minimum payment each month.
Extensions of credit to underage consumers: When a credit card issuers solicits a person under the age of 21, the application must include: the signature of a parent, guardian, or another qualified individual willing to take financial responsibility for the debt; proof of means to pay the debt or proof that the applicant has completed a certified financial literacy or financial education course.
These are just some of the highlights of the bill. There are a lot of other good measures in the bill that protect the consumer against credit card companies. Now that big brother has done their part in regulating credit card issuers, it is now time to do your part and make the necessary changes to keep your finances in order.