New Credit Card Legislation Protects Consumers and Small Business Owners «

New Credit Card Legislation Protects Consumers and Small Business Owners

Update: Many of these provisions went into effect early – December 2009.
New credit card rules, for personal credit cards, have been enacted to protect consumers from predatory lending practices. Since many small business owners use personal credit cards to help finance their business operations, this is particularly relevant to small business. Some of the rules kick in now, August 2009, and the rest are effective in February 2010 and August 2010.

Immediate Effects of Credit Card Legislation
The Credit Card Accountability, Responsibility, and Disclosure Act gives the consumer 21 days to pay their bill before a late charge is assessed. Consumers have found, recently, that card companies have shortened the time between getting their bill, the due date, and the date the late charge (usually $35 or more) is assessed). The new legislation stops this practice.

The legislation requires that credit card companies give consumers 45 days notice of any significant change in credit card terms. Consumers have the option to decline a change in terms such as a rate increase. In other words, the consumer can pay off the existing balance at the old interest rate. During that 45 day period, the consumer can change to another credit card company for any new charges.

Effects of Credit Card Legislation in February 2010
Credit card companies cannot raise interest rates any time for any reason like they have done in the past. If a consumer is 60 days late on a payment, their interest rate can be raised as long as it is directly tied to the prime interest rate.

Now, credit card companies engage in “two-cycle billing” for calculating interest rates. This practice penalizes consumers who only occasionally carry a balance. This practice is now banned by the new legislation.

Credit cards companies must now apply payments to the highest interest balances first, rather to the lower interest balances as is the practice now.

Consumers are now privy to more disclosure from credit card companies. Companies will be required to show how long it will take consumers to pay off their balance if you just pay minimum payments.

Finally, credit cards will not be issued to anyone under 21 without verifying their employment or obtaining parental permission.

Reaction to Credit Card Legislation
Credit card interest rates will become even higher between now and February 2010 in anticipation of the new legislation fully kicking in. The credit card companies will take advantage of this window between August 2009, when the initial regulations go into effect, and the February 2010 deadline. After the legislation is in full effect in February 2010, the credit card companies will undoubtedly come up with a new business model and credit will become more difficult to get.

The good news is that credit card terms will become fairer to consumers. Predatory lending practices have been common in this industry for years and have become blatant during the 2008-09 recession. Legislation to control this industry has been needed for a long time.


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