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But much of the damage has already been done

By Mark Huffman

February 1, 2010

By now you have probably received a notice from your credit card company outlining the changes to your account that will occur later this month, when the Credit Card Accountability and Disclosure Act finally goes into effect.

The law was changed in response to years of consumer complaints about abusive behavior by credit card companies. When the new law goes into effect on February 22, there will be several principal changes:

Payment crediting

Under the new law, if you pay more than the minimum monthly payment, the excess will be applied to balances with the higher interest rate. Currently, the credit card companies can apply it any way they choose, and usually choose to apply it to the balance with the lowest interest. The purpose of this particular change is to allow consumers to pay off their higher balances more quickly, saving on interest charges.

Paying interest

You will have a minimum of 21 days following the close of each billing cycle to pay off the balance to avoid accruing periodic interest charges. Cash advances, however, may still carry an interest charge, even if you pay it back within 21 days. The 21 day window was added because many consumers complained there was so little time between the time they received their monthly statement and when the payment was due.

Rate changes

Under the new rules, rate increases can be made on new balances with a 45-day notice. However, rates on existing credit card balances cannot be changed except under special conditions. This change is designed to end the practice of credit card companies raising customers rates on a whim.

Penalty APR

A penalty APR, also known as drastically raising your interest rate, can still be applied to your account, but only if you fail to may a minimum payment on time, make a payment in which the check bounces, or are late or exceed your credit limit on another account or loan you have with that particular credit card company, or any of its related companies. This provision does away with something called “universal default,” which meant a credit card company could jack up your rate if you were late paying any bill, such as your electric bill.

Other changes include:

• No interest rate increases, in most cases, for the first year that any account is open.

• Your payment will be due on the same date each month, and if the date is a Sunday, it could be received by Monday and not draw a late fee

• In most cases credit card companies may not raise the rate on existing balances, just new charges.

• Your statement will provide a toll-free number for a reputable credit counseling agency.

In addition, credit card company communications to customers will become simpler and easier to understand. One prominent change to statements is the requirement that consumers be provided with an illustration of how long it will take them to pay off their balance, illustrating paying only the minimum amount due each month versus paying off the debt in three years. There will be other changes to statements as well.

“This includes removing the Arbitration section from the agreement effective February 22, 2010,” Chase said in a letter to customers.

But Chase also emphasized that nothing in the new rules “change the interest rates and fees on your account.”

And therein lies for rub for millions of credit card customers. Since Congress passed the CARD action last May, credit card companies have been busy jacking up rates, closing accounts, lowering credit limits, raising minimum monthly payments and adding new fees. In short, doing many of the things they will no longer be allowed to do after February 22.

Consumers complained so loudly that some in Congress proposed passing another law, speeding up implementation of the CARD act to early December. But the measure died when early December came and went without the measure getting out of committee.

Rep. Carolyn Maloney (D-NY), author of the CARD Act, charged lenders were taking advantage of the eight month window between passage of the law and its implementation to continue to abuse consumers. In late October 2009, a report by the Pew Health Group’s Safe Credit Cards Project tended to confirm her suspicions.

The October report found that 100 percent of credit cards offered online by the leading bank card issuers continued to include practices that will be outlawed once legislation passed in May takes effect next year.

The report also found that advertised credit card interest rates rose an average of 20 percent in the first two quarters of 2009, even as banks’ cost of lending declined.

“Since passage of the Credit CARD Act, we found that credit card issuers have done little to remove practices deemed unfair or deceptive by the Federal Reserve,” said Shelley A. Hearne, managing director of the Pew Health Group, which oversees the project. “In fact, some of the most harmful practices have actually grown more widespread-not one of the bank cards reviewed would meet the legal requirements outlined in the Credit CARD Act, which is bad news for consumers.”

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