Credit card companies will now be required to give at least 45 days notice before an interest rate increase, one of several changes going into effect Monday with the activation of the Credit Card Accountability, Responsibility and Disclosure Act.
The CARD Act was signed by President Obama last spring and has been phased in over time.
In the past, companies were almost uniformly permitted to hike interest rates at will, even on existing balances -- and even if cardholder payments were current. Aside from the interest rate notification, companies can't hike rates on existing balances unless they are already 60 days past due.
Obama lauded the changes Monday.
"We are shifting the balance of power back to the consumer and we are holding the credit card companies accountable," he said.
Treasury Secretary Timothy Geithner called the new rules "a critical step forward" in protecting the financial well being of American families.
Credit card companies are still free to set all kinds of fees on the service they're providing. Some say they fear that in order to make up for revenue lost in complying with the new rules, companies will add new fees elsewhere. Companies are also free to raise interest rates as long as they comply with the notification mandates.
Here's a look at a few of the new rules:
Statements
Consumers should see major updates in their statements. Companies will be required to provide detailed summaries, including information about balances, warnings, specific fees and interest calculations. Cardholders will also find a payment plan for getting rid of any balance within three years.
Fees
As with interest rate hikes, consumers will get a 45-day advance warning before changes to various fees. In addition, new restrictions have been placed on over-the-limit fees. Some cardholders were pushed above their credit cap because of interest charges or late fees, but under the CARD Act consumers will have to specifically authorize transactions that would take them over their credit limit before additional charges could be tacked on.
Due Date
Companies are now required to send out statements 21 days before payments are due, and the due date cannot fluctuate. Also, finance charges and other fees cannot be added on to any balance until the 21-day period has expired.
Under 21 Rules
College campuses are often jammed with credit card companies offering free t-shirts and snacks, and the tactics have worked. Nearly 84 percent of undergraduate students report they've got at least one card, and the average balance for students is around $3,100. Now, individuals under 21 will have to have a co-signer or offer solid proof about ability to pay.
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