| Sure, the Credit CARD Act was a step in the | | | | answers were mixed. A few issuers said, "Yes, |
| right direction. We all have a little more consumer | | | | this is covered under the CARD Act so the |
| protections than we did before. But as we've | | | | cardholder will get 45 days' notice." But others |
| seen too often, when Washington tries to fix our | | | | suggested that the law isn't clear about this |
| problems, the legislation gets watered down to | | | | specific circumstance. They all seemed to agree |
| the point where the language is, well, wishy-washy | | | | that consumers should get as much warning as |
| at best. Here are just a few of the areas where | | | | possible, so that's one positive thing to take from |
| the vague wording of the CARD Act gives credit | | | | their responses. |
| card issuers a little too much wiggle room. | | | | Universal Default |
| Regular Interest Rate Hikes | | | | The CARD Act states that issuers can't apply |
| Many consumers think that the law protects | | | | universal default. This means that your card issuer |
| them against rate hikes. This is true, but only to a | | | | can't raise your interest rate on a specific account |
| point. You're only protected during the first year | | | | just because you were late on an unrelated |
| of a new account (with a few exceptions, such | | | | account. But there's some universal default-type |
| as variable rates that are tied to an index). But | | | | language that's still suspiciously present in a few |
| what about that $2,000 balance you have on the | | | | card offers' "Terms & Conditions." When |
| card you've had for three years? The CARD Act | | | | considering on offer, be sure you read the section |
| prohibits retroactive rate increases on existing | | | | that states what triggers the penalty APR. The |
| balances. But your rate on that card can | | | | usual suspects are late payments, exceeding your |
| increase "significantly" on your future purchases as | | | | credit line, or making a payment that's returned |
| long as you're given 45 days' notice. | | | | unpaid. But look for something extra that includes |
| Penalty APRs | | | | the afore-mentioned situations plus stipulations |
| If you're more than 60 days late on a payment, | | | | similar to this: based on information in your credit |
| the penalty rate kicks in. According to a recent | | | | report, market conditions, or at any time for any |
| study by The Pew Health Group, the median | | | | reason. |
| penalty interest rate is 29.99%. Interest expense | | | | Allocation of Payments |
| will rack up pretty quickly at that rate. Starting on | | | | The CARD Act requires issuers to apply |
| August 22, issuers are supposed to review a | | | | payments that exceed the minimum payment to |
| cardholder's rate increase after 6 months of | | | | the higher balances first. But here's a catch: |
| timely payments. The law states that the card | | | | Creditors can still put the minimum payment |
| issuer's review must involve factors such as | | | | towards the balances with lower interest rates. |
| market conditions and creditworthiness of the | | | | So you might think you're paying down that |
| cardholder. | | | | $3,000 balance with the 19.95% APR, but the |
| The issuer is supposed to reduce the rate if | | | | minimum payment you made is actually being |
| you've made six consecutive payments "on time." | | | | applied to the $1,000 balance you have with the |
| Keep records to show the exact dates you're | | | | 9.99% APR. |
| making payments. This language leaves a little | | | | Added Fees |
| room for issuers' shenanigans, so expect to see | | | | The card issuers have lost revenue due the |
| some creative maneuvering when it comes to | | | | legislation, so it was predictable that added fees |
| backing off penalty rates. | | | | would be part of the "unintended consequences" |
| Student Credit Cards | | | | that accompanies this kind of law. You've already |
| The legislation requires that students under the | | | | probably seen some of these: annual fees, |
| age of 21 can't qualify for a card without a | | | | over-the-limit fees, and foreign transaction fees. |
| co-signer unless they show they have enough | | | | One of the more egregious fees has been the |
| income to cover debts. When we asked card | | | | inactivity fee. But the next phase, starting on |
| issuers to clarify what "adequate income" means, | | | | August 22, will ban these fees. |
| they declined to get specific. But if you can't show | | | | What Can You Do? |
| show steady income (not just from summer | | | | For starters, pay your bills on time. Even though |
| employment), you most likely will need a co-signer | | | | some of these tactics are probably illegal at this |
| to get a credit card. | | | | point, it's always better to be proactive and |
| Discontinued Credit Cards | | | | prevent the penalty APRs from being an issue in |
| The good news is that you probably won't be | | | | the first place. Be your own consumer advocate |
| standing at the cash register when you find out | | | | by making sure you read every piece of mail you |
| your card has been discontinued. You'll get notified | | | | receive from your issuers. If you feel you've |
| in the mail. How much notice? No one is totally | | | | been unfairly treated--either due to interest rate |
| sure. It's not clear that this falls under the 45 | | | | changes or any other type of fee that looks out |
| days' notice requirement of the CARD Act. | | | | of line--contact your issuer immediately and stand |
| When we asked card issuers this question, | | | | up for your rights. |