Here is a breakdown of some of the major provisions of the new credit card rules as provided by Bill Hardekopf, CEO of LowCards.com and the Board of Governors of the Federal Reserve System.
No interest rate increases for the first year of a new account. Your credit card company cannot increase your rate for the first 12 months after you open a new account. There are some exceptions: if your card has a variable rate tied to an index that goes up or the payment is more than 60 days late, among others.
In most cases, any monthly payments above the minimum amount must be applied to the balance with the highest interest rate first.
Increased rates apply only to new charges. If your credit card company does raise your interest rate after the first year, the new rate will apply only to new charges while your old interest rate will apply to your existing balance.
Your credit card company must give you 45 days notice before it can increase your rate or certain fees (annual fee, cash advance fee, late fee) or make other significant changes to the terms of your card.
The company doesn’t have to send a 45-day advance notice if you have a variable interest rate tied to an index, your introductory rate expires and reverts to the previously disclosed “go-to” rate, or your rate increases because you are in a workout agreement and haven’t made payments as agreed.
If your credit card company is going to make changes to the terms of your card, it must give you the option to cancel the card before certain fee increases take effect. If you take that option, however, the credit card company may close your account and increase your monthly payment, subject to certain limitations.
Protection for underage consumers. People under 21 must show that they can make payments, or they will need a cosigner to open a credit card account. Issuers are also prohibited from offering free gifts to young adults as inducements for signing up for a credit card.
Restrictions on over-the-limit transactions. over-the-limit fees are banned unless you give issuers permission to allow the transactions that put you over your credit limit. If you don’t “opt in,” then issuers cannot charge you this fee and your transaction may not go through.
Your statement must clearly explain how long it will take to pay your balance if you only make minimum payments. It must also tell you how much you need to pay each month in order to eliminate your balance in three years.
Caps on high-fee cards. If your credit card company requires you to pay fees (such as an annual fee, processing fee or application fee), those fees cannot total more than 25 percent of the initial credit limit. For example, if your initial credit limit is $500, the fees for the first year cannot be more than $125. This limit doesn’t apply to penalty fees such as penalties for late payments.
Standard payment dates and times. Your credit card company must mail or deliver your credit card bill at least 21 days before your payment is due. Also, the due date should be the same date each month and the payment cut-off time must be 5 p.m. or later on the due date. If the due date falls on a weekend or holiday when the company does not process payments, you will have until the following business day to pay.
No double-cycle billing. Credit card companies can only impose interest charges on balances in the current billing cycle.
Universal default is now prohibited. Issuers can no longer increase a cardholder’s APR based on his or her payment records with unrelated accounts, like a utility bill.