5 CARD Act gains

Many consumers have never heard of the law that brought about recent changes in credit card disclosures, offers and industry practices. In fact, just half of credit card holders report awareness of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, according to a 2011 survey from Synovate, a global market research firm.

Though the law rolled out in three main phases, the biggest round of provisions took effect on Feb. 22, 2010.

Here are five rights or protections consumers:
1)In the past, if you missed one payment to another creditor, your credit card issuer could jack the interest rate on your balance. The CARD Act banned this practice of "universal default" on existing balances. That is, issuers cannot increase the interest rate on existing credit card debt. There are four exceptions to this rule, however.

The law permits a rate increase on a balance if your payment is 60 days or more past due; if your account has a variable interest rate and the rate hike is due to index movement; if the increase is due to the expiration of a promotional interest rate; or if a workout agreement has ended. Rate hikes on existing debt for other reasons aren't allowed.

However, the issuer can raise the annual percentage rate on new charges after the first year following account opening, but must provide 45 days' advance notice of the change.

2)Before the law took effect, issuers could impose $39 late fees for past due payments regardless of the minimum payment amount. The Credit CARD Act changed this practice by requiring that penalty fees be "reasonable and proportional to the violation of the account terms." The Federal Reserve set safe harbor caps of $25 for the first violation and $35 for a repeat offense within six billing cycles. To go higher than those amounts, the issuer would have to prove that the costs it incurs as a result of the violation justifies a higher fee.

In addition, the penalty fee cannot exceed the dollar amount associated with the violation. For example, if the minimum required payment of $20 isn't paid on time, the issuer cannot charge a late fee of more than $20. Issuers can only charge a consumer one penalty fee for a single violation in a billing cycle.

3) If you had balances with different interest rates, it used to be the case that your issuer could apply your payment to your balances in whatever order it wished. So, if you had a balance transfer debt at a low introductory rate and a purchase debt at a higher rate, the issuer could apply your payment to the balance transfer debt first to maximize interest charges.

The new payment allocation rule in the CARD Act requires issuers to apply any payment above the minimum to the balance with the highest interest rate first, then to the balance with the next highest rate and so on until the payment is exhausted. To take advantage of this provision, you have to pay more than the minimum amount due.

4) The CARD Act permits card issuers to raise your interest rate if your account becomes 60 days delinquent. Yet the law includes a reward for good behavior. Pay your bill on time for the next six billing cycles and the rate increase must be terminated.

5) No longer can card issuers change the due date for payments from one month to the next or set an arbitrary cutoff time on the due date. The CARD Act requires that the due date be the same date each month, and the cutoff time be no earlier than 5 p.m the day the payment is due. In addition, issuers cannot treat a late payment as such unless it delivered the billing statement to the customer 21 days in advance of the due date.

CFPB reviews Credit CARD Act

One year ago, many provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 took effect. In conjunction with a conference marking its anniversary today, the Consumer Financial Protection Bureau, the new consumer watchdog agency created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, released a report on the impact of the law. The CFPB will take over responsibility for administering the Credit CARD Act later this summer.

According to the report, the CARD Act did a lot of good for consumers. Overlimit fees all but disappeared from the industry, monthly statements more clearly broke down costs to the consumer, the average late fee dropped and the incidence of rate hikes on existing accounts fell sharply.

For its analysis, the bureau conducted a voluntary survey of the nine largest credit card issuers, commissioned a survey of cardholders and used data from several other studies developed for the conference, including a report from the Office of the Comptroller of the Currency.
The good news

"A number of issuers have eliminated some of the practices that can confuse customers and cost them money they reasonably did not expect to pay," Elizabeth Warren, an assistant to the president and special advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau, said at the conference.

* Drop in overlimit fees. The CARD Act banned issuers from charging an overlimit fee unless the consumer had opted-in to permit the card issuer to approve overlimit transactions. Without such action by the consumer, the issuer could not charge a fee for exceeding the limit.

The CFPB's industry survey found that six of the nine issuers no longer charge overlimit fees. The share of accounts that charged an overlimit fee has fallen from about 12 percent per year to 1 percent.

* Drop in average late fee. The CARD Act set limits on credit card penalty fees, including late fees. The safe harbor amount is $25 for the first violation, and $35 for a repeat offense within the next six billing cycles, with the fee not to exceed the minimum payment due.

The average late fee has since dropped from $35 to $23, according to the OCC study.

* Drop in rate hikes applied to existing accounts. The CARD Act prevented credit card issuers from raising the rate on an existing balance unless one of four exceptions was applicable. Issuers could raise the interest rate on new transactions, but could only do so with 45 days advance notice.

The OCC study found that prior to the Credit CARD Act about 15 percent of accounts were repriced during a one-year period; post-CARD Act the number dropped to 2 percent.

* Credit card costs clarified. Monthly statements must now state how much you must pay each month to clear the balance in three years, the total cost if you only make the minimum payments and the total amount of interest charged year-to-date.

According to the CFPB's consumer survey, 31 percent of cardholders who noticed the changes on their monthly statement said it prompted them to either increase their payments or reduce their use of credit. About 60 percent of those that noticed the new information said their statements were easier to read and understand, compared to a year ago.
A look ahead

In her remarks at the conference, Warren indicated there was room for improvement.

"Our next challenges will be about further clarifying price and risk and making it easier for consumers to make direct product comparisons," she said.

Do you think the CARD Act personally helped or hurt you?