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Tuesday, May 26, 2009

What the Credit Cardholders Bill of Rights Means for You

Andres Rueda

This Friday, President Obama is expected to sign the ‘Credit Cardholders Bill of Rights’ into law. The House of Representatives passed their version of the bill on April 30th by a 361-64 margin. In similar overwhelming fashion, the Senate passed their version of the bill in a 90-5 rout. The House has agreed to collaborate and adopt the Senate’s version of the bill, which has been deemed to be more strict on credit card providers than the House version. So what does this mean for you?

If you’re a student or a minor, you will see the highest level of direct impact:

For college students that don’t have a co-signer, the max amount of credit extended will be limited to the greater of 20% of the student’s annual gross income or $500 dollars. The aggregate amount of credit extended from all of their credit cards will be limited to 30% of the student’s annual gross income (for the recently completed calendar year).
Creditors are prohibited from opening a credit card account for any college student who does not have any verifiable annual gross income or already maintains a credit card account with that creditor, or any of its affiliates.

For consumers under 21 years old, the signature of a parent or another responsible adult who will take responsibility for the debt is required, or proof must be found that the under-21 consumer can repay the credit.
Creditors are prohibited from providing credit to consumers under age 18. (unless they are emancipated under state law, or the consumer’s parent or legal guardian is designated as the primary account holder).

But…Everyone with a Card has a Chance to be Impacted by the Following Rules

Existing balances:
Creditors cannot retroactively change the rate on an existing balance unless the account is 60 days delinquent.


A consumer payment above the minimum applies first to the balance with the highest rate.
Creditors are required to provide a grace period for payments even if the cardholder takes advantage of a promotional rate balance or deferred interest rate balance.

Bill Receipt:
Creditors must send a bill at least 21 days before the due date.

Terms Disclosure:
Cardholders must get at least 45 days notice of any change in terms.
Creditors are required to post their written credit card agreements online.
Creditors need to provide a 30-day advance notice of an account closure.

Credit Scores:
Creditors must remove information provided to a consumer reporting agency about newly established credit card accounts if the holder has not used or activated the account and and if they contact the creditor within 45 days of its opening to close it.


Payment fees - Creditors can’t charge fees to pay by mail, phone, and electronic transfer or online, except for expedited service on the due date or the day prior to the due date.

Double billing fees - Creditors are prohibited from charging a finance charge based on the double billing cycle method.

Interest fees - Creditors can no longer charge a fee on an outstanding balances at the end of the billing period if the fee is attributed to the interest accrued on an outstanding balance that was fully repaid during that preceding billing period.

Over-limit fees - Creditors cannot charge over-limit fees unless the cardholder has signed up to allow them. This is something that you’d be a little crazy to sign up for.

Rate Increase Limitations:

Promotional (teaser) rates - Creditors must extend promotional rates to at least six full months.

New accounts - Creditors can’t increase the annual percentage rate (APR) during the first 12 months of a new account being opened.

Rate changes - Creditors must provide consumers with a 45-day advance notice of changes in rates and significant contract changes.

Gift Cards:
All credit card gift cards must have at least a 5 year life.

I’m a Responsible Cardholder who won’t Benefit from any of the Above. I Pay my Bills on Time. Should I Fear Credit Card Company Retaliation and Benefit Decreases?
Credit card providers have been threatening to do away with all of those nice perks (air miles, cash back, free dog food, etc.) and even start re-instating annual fees again. They claim that with all the revenue loss from the aforementioned changes, they will have to make up revenue somehow.

Ah, but not so fast guys. Let’s not forget that credit card companies make money off of everything that we purchase (~2%) through merchant fees. At the same time, most companies limit their perks benefits to 1% or less. And other fees and interest are not going away any time soon, regardless of the bill of rights. Therefore, they need customers to prosper from , and not many companies are limiting who they providing cards to.

The consumer, not the companies, has all the leverage in the marketplace. If my card company tries to take away my perks, I’ll switch. The odds are there will be more than a few providers that won’t take away perks. If they all come to an agreement to eliminate perks, then I will simply switch to a debit card.

In an ironic reversal of fortunes, they’ll have to take it and like it.
For more of GE Miller’s writing, visit personal finance blog