Credit Card Regulation Changes

Credit Cards

Last week, the Credit Cardholders’ Bill of Rights was enacted and a lot of unfair credit card practices will be eliminated with these credit card regulation changes.

Universal Default is Eliminated

Universal Default meant that if you had four credit cards and defaulted on any one of them — all four credit card issuers had the right to impose the default APR on you. So, even if you hadn’t defaulted on a particular card — you could be charged the default rate because you defaulted on some other credit balance. This practice has been eliminated.

Any – Time Any – Reason Changes in Terms is Eliminated

This was a standard disclaimer on cards and meant that the credit card companies could change your rates quite easily on existing balances.

Say, your credit score went down a few points because of some reason — the card companies had the right to increase your APR because of this credit score drop.

This rule has been eliminated now, and the credit card company can only change your fee or APR — after the expiry of your contract, or for reasons that have been specified in your contract.

Advance Notice on Credit Card Rate Increase

In cases, where the credit card issuer wants to increase your APR — they will have to give you a 45 day notice.

This rule is not applicable to introductory rates. So, if your 0% introductory rate is about to end, then they don’t need to give you any notice. Similarly, if your APR is indexed and the index rate itself changes — the credit card company doesn’t need to give you a 45 day notice.

Your APR can’t be Increased Retrospectively

The 45 day notice above means that credit card issuers can’t increase your APR retrospectively. So, you won’t wake up one morning and find that you have to pay a 15% APR instead of your usual 7%, on the shopping you did for Christmas.

Right to Cancel, When You Receive a Notice for Increasing APR

If your credit card issuer sent you a mail telling you about a rate increase — you have the right to cancel your credit card by paying off your balance and not incurring any extra fee or interest on your outstanding balance.

The time you get to cancel your credit card starts when you receive the notice and ends when you receive the third periodic statement after the effective date of the increase.

Double Cycle Billing Prohibited

The double billing cycle meant that the credit card company had the right to calculate your interest on the past two cycle’s daily balance. In some cases, this amounted to extra interest needed to be paid by you (on top of the interest on the current balance).

This has now been stopped and credit card companies can’t charge you interest on the balance that you have already repaid.

No Default or Penalty for: Only Accrued Interest

If your account balance consists of just accrued interest on previously repaid credit and you don’t pay it, then no fee will be imposed on this sum. Also, this will not constitute as default on the account.

Pro Rata Payment on Card with Two APRs

Normally credit cards charge a different APR for cash advances and regular purchases. In the past they had the option of using your repayment towards the amount that had the lower APR before applying it towards the amount with the higher APR.

Say your card charges you 10% on regular purchases and 20% on cash advances. You took a cash advance of $200 and made purchases worth $200. At the end of the month — you paid off $200. The credit card company had the right to apply a 20% rate on your outstanding balance of $200.

But, they can’t do that any longer. They will have to charge you 10% on $100 and 20% on the next $100. But, if they want to use the amount you repay to pay off the higher APR balance — they can still do that.

You Can Decline: Over the Limit Transactions

If you have a card with a limit of $3000 — there is a possibility that your credit card company allows you a purchase worth $3,500 and then charges you a hefty penalty because you went over your credit limit.

The change in credit card rules give you the right to stop over the limit transactions. You can tell your credit card company that you don’t want them to allow a transaction that crosses your credit limit and has you pay a big penalty. Let them accept credit card payment from you before allowing you to make more purchases on your credit card.

Wait For A Year Please!

These rules are not effective immediately and will only come into play after the lapse of an year from the enactment of the act.

Photo Credit: Credit Cards