Credit CARD is the clever acronym for the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which went into effect last week on Feb. 22. As part of the broader effort to curtail the economic recession and end the egregious practices within the financial sector, this law, signed by President Obama in May 2009, addresses credit card issuers across the board.
While this could potentially reduce profits for many of the nation’s major credit card issuers, this does offer a few significant benefits to consumers, some of which are particularly helpful for students.
There are no random interest rate increases. Credit card issuers can no longer abruptly or retroactively raise interest rates to punish borrowers for late payments on their accounts, except if the payment is late by 60 days or more. And if a borrower does trigger the 60-day rate increase, credit card companies must restore the default rate if the borrower demonstrates timely payment for six months.
In addition, interest rates cannot be raised within the first year that the credit card is issued and if the card is issued on a lowered promotional rate, that rate must last for at least six months. Borrowers must now get 45 days’ notice before any contract changes happen, including rate changes, but not changes in credit limits. Issuers can also no longer charge fees for methods of payment, including payments made by phone or internet.
No more double-billing and better payment allocation. Credit card issuers can no longer charge interest or any other finance fees on both current and previous balances. Before this, companies could charge interest on balances even after the borrower has made the payment.
Also, contract fine print used to bear a clause that let companies apply payments to low-interest charges first, while charges with high-interest rates remained on the books and gained interest. CARD now requires companies to apply charges on high-interest charges first.
There is also more time to pay and gift card protection. The grace period for credit card payment has been extended from 14 days to 21 days. The new law also prevents gift cards from expiring for five years from their issuance and credit card companies can only charge inactivity fees after 12 months of disuse.
However, this law does have one mixed blessing for college students in its provision that prevents people below the age of 21 from getting credit cards without proof of a stable income or an employed co-signer 21 years-old or older.
“Our branch is definitely affected because we’re on a college campus,” said Madelyn Kim, fourth-year film and media studies major and a customer service and sales representative at UCI’s Wells Fargo branch.
“The reason Obama focused on people 21 and younger was because most of the loans and debts we deal with are from students with no stable salary and no way of paying. However, much of our profits come from student credit cards and student loans, but now the applicant pool is limited and interest rates are capped,” Kim said.
While students who currently hold credit cards will not be affected by this provision, it will certainly affect students who try to open new accounts, particularly if they are out-of-state students. The’ll have to go through a lot more paperwork, e-mail and phone correspondences with their parents or other trusted co-signers to get a credit card.
“Sure, you have to think of the time it takes to get e-mails and parent responses across,” said third-year criminology major Judy Kim, whose family lives in Nevada. “Though, I can see how students can take advantage of new credit cards and build up a lot of credit quickly. I’m sure most students can be responsible, but it might be good for parents to have some way to keep their kids from going over their limits.”
Kim also pointed out that one of the major reasons students get credit cards is because they need to establish credit. An established credit history serves a fresh graduate in many ways: getting an apartment, signing a contract for a cell phone or applying for a job.
Though this law will make it a little more complicated to acquire a credit card and a little more expensive to own one, the Obama Administration signed it into law with the intention of making students more responsible with their credit.
Credit card companies are not taking these laws lying down, either. JP Morgan Chase, a major credit lender, projects that its annual net income could fall by $500 million and $750 million because of the new law. Other banks and lenders expect similar income reductions.
Borrowers can expect to see other fees and fee increases on their credit card statements that are not covered by this law.