The Credit CARD Act

Understanding the effect of recent federal credit card legislation

If you keep an eye on the news at all, you’ve probably heard about something called the Credit CARD Act.¹ And like many consumers, you may be wondering how this law affects you, your current credit card, and your ability to get credit in the future.

Why was change needed?
For some time, there was concern about a number of credit card practices that consumers found confusing. Especially in this difficult economic climate, lawmakers wanted to be sure consumers had a fair chance both to access credit and to repay the amounts they owe. Their solution, the Credit CARD Act, is a series of amendments to the Truth in Lending Act.

What are the benefits for cardholders?
The emphasis of this legislation is on clearer communication to consumers, simpler billing and payment practices, more consistency regarding rate increases and more reasonable fees. Bank of America is complying with the CARD Act in ways that best meet the needs of consumers.

Bank of America implemented many changes included in the Credit CARD Act, including:

• Reductions in late payment fees. The amount of late fees has been reduced, and is now based on the number of late payments you make. The first time your payment is late, the fee will be $25. If any more payments are late during the next six months, your late payment fee will increase to $35 for each additional occurrence. After that, if you pay on time for six months in a row, your late payment fee will be returned to $25. In addition, the amount of your late payment fee cannot be more than your minimum payment. For instance, if your minimum payment is $20, your late payment fee can’t be more than $20. At Bank of America, we will not charge a late payment fee if your account balance is $100 or less.
• One-fee limit. Companies cannot charge you more than one penalty fee for a single event or transaction in a billing cycle.  For example, you cannot be charged both a late fee and a non-sufficient funds fee or returned cash access check fee in the same billing cycle.
• Re-evaluation of rate increases. If your APR is increased, companies must re-evaluate rate increases every six months. If appropriate, they must reduce your rate within 45 days after completing the evaluation. At Bank of America, any account that had a rate increase since January 1, 2009 will be reviewed every six months beginning in February 2011 to see if it qualifies for a rate decrease.
• Re-pricing of existing balances. Even though the CARD Act permits re-pricing of existing balances on consumer credit card balances when the customer is 60 days or more past due, Bank of America does not re-price existing balances.
• Restrictions on rate increases. Except for introductory rates that are expiring or changes in the Prime Rate that effect variable rate accounts, there will be no rate changes for the first 12 months an account is open; after that, you’ll get notice of rate increases at least 45 days before the change.
• New rules for payment allocation. If you have balances with different interest rates, any amount paid over the minimum payment will be applied first to posted balances with the highest rates, so you can pay down your balance more quickly by paying more than the minimum payment.
• Overlimit fee opt-in.  Unless you agree (“opt in”) to allow charges to go over your total credit limit, companies will not be able to charge overlimit fees. This could save you money in fees, but be aware that if you’re too close to your total credit limit and you attempt to use your card to make a purchase your card may be denied. Bank of America is one of a few U.S. issuers to eliminate over-the-limit fees entirely.
• More consistent payment due dates. Payments will be due the same day every month, and you will have more time to pay — at least 21 days from the time your statement is mailed until the total minimum payment is due.
• More information on your statement. You will be able to see an estimate of how long it would take to pay off your balance — and the total cost to you (including interest and principal) — if you paid only the total minimum payment each month. You’ll also receive notices about late fees or penalty rates (if they apply), and a toll-free phone number where you can get information about credit counseling, if you need it.
• Easier access to your credit card agreement. Credit card issuers will post representative samples of credit card agreements online. If you need to refer to your own credit card agreement, you will be able to request it online, and a copy will be mailed to you. Be sure to refer to your own credit card agreement when verifying terms of your account.

Is there a downside?
These new regulations are designed to improve many aspects of the consumer credit card experience; however, they also limit the ability of credit card issuers to manage risk through pricing. As a result, people with good credit may have to pay more in order to enjoy the convenience and flexibility of credit. And if your credit history is poor, you may find it much harder to get credit.

What can we expect in the future?
The provisions of the law are now in place, but it’s still up to you to pay close attention to your credit card account. Here are some things you can do to minimize fees and inconvenience:

• Manage your debt. Paying on time and keeping balances at a reasonable level is still the best way to avoid fees and minimize interest payments.
• Review your statements carefully. Keep close track of rates, fees and due dates.
• Read all your mail. It may be a hassle, but this is not the time to miss seeing a change in terms from your credit card company. Since these companies are required to notify you every time a change occurs, you may receive several mailings from the same credit card company.

Although the Credit CARD Act rules apply to every company in the industry, individual companies may implement them differently. Make sure you pay close attention to any information you receive from your credit card company regarding changes to your account. Ideally, this law makes it easier for you to understand your credit terms and manage your debt, while still allowing reasonable profits for credit card companies, so that consumers, credit card companies and the economy will all benefit.

¹This legislation is more officially titled the Credit Card Accountability Responsibility and Disclosure Act of 2009, H.R. 627 of the 111th Congress of the United States.