There is an increasingly growing concern among the population about the potential abuses going on in the credit card industry. While many people think that they are being sent into financial instability by taking on credit card loans, it has become more necessary than ever to ensure that the public is informed of their rights and how well they can steer clear of debts using the best practices of handling a credit card, you can do so by seeing a consumer attorney.
With the growing concerns surrounding the credit card industry, Congress has been moved to pass the Credit Card Accountability Responsibility and Disclosure Act of 2009. Also known as the Credit CARD Act, once passed it brought about a new wave of fresh rules which guide the credit card industry and provide an umbrella of protection to credit card users and applicants.
What is The Credit CARD Act and What Protection does it Offer to Applicants and Holders?
The Credit CARD Act was passed to check the growing concerns in the credit card industry. Simply put, the Act was passed into law as a means of protection for applicants and holders while also ensuring that companies offering credit cards are held accountable and transparent.
Under the Credit CARD Act, consumers who are shopping for new credit cards and existing credit card holders are given some protections which were not clear, or non-existent in the past. The key changes brought on by the Act include protection for cardholders for the interest charged on loans and also the credit card fees charged by companies issuing the cards.
In addition, the Credit CARD Act offers some form of protection to card owners from an increase in interest rates and many other benefits.
Below is a summary of some of the benefits offered by the Credit CARD Act
Annual Percentage Rate (APR) Increases
Under the Credit CARD Act, credit card companies and issuers are not permitted by law to increase the Annual Percentage Rate on the existing balances within a year of opening an account. However, such increases may be made in the event any of these four exceptions:
- A bank notified the account holder that the APR would increase before the account was opened.
- The APR increase came about due to an “index” change beyond the control of the credit card issuer.
- The APR is increased due to the failure of the cardholder to maintain and abide by the workout arrangement which had been made between the cardholder and the credit card company. Workouts are mostly issued to cardholders who are faced with certain financial challenges which have made them unable to meet their earlier debt repayment agreements.
- APR may also be increased when the credit card holder has failed to make the required minimum payment to service their loans in a period of sixty days.
After a period of one year from the time that the credit card was issued, the credit card company can proceed to raise the APR on the account. The increase, however, will only apply to new transactions that are being made on the credit card account and not on the existing transactions whose interest rates had earlier been agreed upon by the creditor and the cardholder.
Notice of Disclosure Requirement
The Credit CARD Act also ensured that issuers have to remain transparent with cardholders by implementing new notice requirements. The Credit CARD Act also incorporated some new important disclosures which include:
- Notice in advance of cogent changes and an increase in rates — under the Credit CARD Act. Credit card issuers are now compelled to give cardholders no less than 45 days of notice, informing them of the changes in the Annual Percentage Rate or other important changes that can affect the terms of the existing financial relationship between the lender and the consumer.
- Credit card companies must include a notice of the right to cancel in the event of agreement changes — This means that credit card companies have to give cardholders a chance to make the decision to cancel their credit cards in the event the changes to the agreement are not considered to be favorable enough. The Act allows for credit card companies to give cardholders a period of 45 days wherein they can cancel their cards and agreement should they be uncomfortable with the new agreements stated in the notice that has been dispatched. In the event a consumer chooses to cancel their card, this cannot be regarded as a default on the part of the consumer. Also, the credit card company under the Act cannot force the cardholder to pay all of the money owed in debt at the time of cancellation.
- Transparency on total time for debt servicing — the Credit CARD Act also allows consumers to stay updated on the total required time for them to repay a debt owed to the credit card company. This means that the credit card company must show the amount a consumer is required to pay monthly to offset the balance in thirty-six months. The statement is also expected to contain both the payment and interest. By extension, the statement must also inform consumers about the consequences of making a minimum required payment to service their loans.
- Disclosing due dates and fees — credit card companies are required to be transparent about the due dates of the next payments thus keeping consumers informed on the next time they are expected to make payments to service their loans.
- Notification of Penalty APR — credit card companies are also expected to inform consumers on penalties, such as increased APR in the event such a consumer fails to make payment as at when due.
- Disclosure of interest and principal paid — the statements issued by the credit card company should also contain information on the interest and/or principal that have been paid for by the cardholder.
The Credit CARD Act also established some fine print for credit card companies and consumers, especially in the event of late payments. Providing increased protection for consumers, the Act allows consumers to receive statements on a monthly basis and the rules hold that payments cannot be deemed to be late if the statement has not been mailed and delivered to the consumer 21 days before the next payment’s due date.
The Act compels credit card companies to follow certain rules, especially regarding how account payment is handled. Perhaps the most notable and important change as regards how payment is being handled applies to customers with multiple Annual Percentage Rates (APRs).
Credit card companies are now required to allocate payments first towards servicing debts with the highest APR. This prevents the company from servicing debts with lower APR while accrued interest on the debts with higher APR grows.
In addition, the Act now prohibits double-cycle billing.
Creditors can no longer raise the interest rate of consumers based on the reports which they have obtained from other creditors. This cut back allows debtors to get a better interest rate without the influence of their past financial decisions.