What the Credit Cardholders Bill of Rights Means for You
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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:
Students:
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.
Minors:
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.
Payments:
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.
Fees:
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 20somethingfinance.com.
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25 Comments so far
leave a commentFor the college student max amount of credit extended limit, will this affect existing cards or only new ones?
Very interesting! Big props to the Mint team for summarizing the Credit Card bill of rights.
After call Citi,and two representatives, neither new how this would effect pre-existing accounts of students that are 21 of age or less.
I hate to see a reduction in my credit limit, for credit score shakes. Since I’m way above that 20% rule on my credit limit. I think this is ridiculous rule, especially for folks like my self who can mange their debt and have control over spending. Reason i have such a high limit, is because i want to keep my ratio low of debt to limit low.
Another reason why i think it is bizarre, is at age of 18 I’m consider an adult in the USA and i think I’m old enough to handle responsibility and make the necessary decisions. I can go to war, get the death penalty, but can not have a credit limit higher then 20% of income, or have a beer. Oh also with this bill, we can now carry guns in state parks.
Congress just passed this to think they are helping the financial crisis,and to aid in getting re elected (reason to though in the gun part in). From my understand the problem was “home Owners” by houses they could not afford, not students trying to buy books for a semester.
seriously with the limits they have on student is terrible, i cant even punches my books for semester with out going over 50 % of my new credit limit if it gets restricted with this law.
I hope current holders that are students will get there limits grandfathered.
The free market needs to determine both interest rates and credit limits. If you can’t pay your bills, it’s your own fault. Want less credit card debt? Buy cheaper stuff. Live below your means.
If there were a card that offered a similar bill of rights, but didn’t offer the same perks, would you choose it? Why, then, should you be happy that the government has chosen it for you?
Brian
Just use a debit card, it’s much easier and safer in the long run.
Don’t buy things until you have the money to buy them and keep a healthy amount saved up for emergencies.
It sounds hard but it really isn’t. Do this and escape from the trap of credit cards forever.
It’s a good start. Credit card companies have been screwing people for two decades.
If you went over your limit in the past, they’d deny the transaction. Now they allow it and charge you $40 – $60 each time you charge something. So, if you don’t realize your payment didn’t post yet and you make three small purchases you might owe $200 in over limit fees!
If you’re a day late, they can retro-actively attack your balance with as high a rate as they want. They could raise your rate to 50% and you can’t do anything about it.
Card companies can raise your rate even if you’re late on an unrelated credit, like a phone bill or gas bill. “Global default.”
Some companies will finally send you the bill a week before due date. If you pay before they send the bill, they will apply the payment to your balance BEFORE the bill is due, therefore tricking people into paying late.
If you don’t have less than stellar credit, you’re screwed. And they shouldn’t issue $10,000 cards to college kids. It’s intended to get you into debt as soon as possible.
So don’t tell me “The free market should dictate this” because that’s a load of bullshit. Sure, if you’re a good little puppy and NEVER accidentally make a late payment, you’re OK. But nobody is perfect and people get fucked for it bad.
It’s all been designed to trick you into paying fees. Credit companies are no longer in the business of making an honest buck. Hopefully these new laws that are REASONABLE will help people get handle on their money, credit, and budget. Lord knows we need it.
mark, that would be awesome! can you show me where this free market between credit card companies and debtors exists? because the credit card companies are kind of a cartel, you know.
The notion of payments going to low interest debt has been used to allow some cheaper credit knowing it gets paid off fast. That will go away now. Also intro rates will likely go away; if the customer who just signed up (and who the bank doesn’t after all know) turns out to be a flake, his rate can’t be adjusted quickly. So rates will be set higher. Don’t be too surprised if annual fees come back either, particularly for cards you don’t use often. That will tend to reinforce MC/Visa duopoly since it will tend to make folks keep ONE card unless they like paying annual fees. I like Discover, but have a Visa in case they don’t take Discover somewhere. If I have to have only one card or pay extra I might forget about Discover (same goes for Amex). Remember when ATMs were all free? They now mostly aren’t. Fees can be widely done and the option to go to the cheaper provider might not exist. Some of the crud being made illegal is well done away with, but there are downsides more subtle. Publicizing which card companies did the sneaky stuff and which did not might have had similar effect and maybe not had the downsides, but would lack the political benefits to Administration and Congress. When the history of the current debacle is written, it will be recorded that governmental pressure to write bad loans got the landslide started, and failure to lift a finger against frauds and the vastly overdone securitizations convinced many that this stuff must be OK. (I am reminded of some of the statements Hannah Arendt made in “Eichmann in Jerusalem” where she describes how very ordinary people get led to do terrible things because they perceive “everyone says this is right”…roughly, not exact quote…)
Not sure why you say as a “responsible card holder” you won’t benefit from any of the above. A lot of this benefits those of us who use our cards responsibly… the changes to fees, payments, and notification requirements alone are huge for everyone with a credit card. I do wish they had established some sort of usury laws with regards to credit cards though, nothing here prevents credit card companies from raising rates to absurd levels, just makes it a more difficult and time consuming process for them.
This bill does not put limits on rates. It puts an end to the deceptive and predatory trade practices on the CC companies. Some of these rules have already been implemented at the state level. The net effect will not result in a rate increase, those rates are already in effect by the deceptive practices. This bill just exposes the real, effective rate of having all the penalties. This bill levels the playing field and allows consumers to judge competing products. College students will apply for multiple cards.
“The free market needs to determine both interest rates and credit limits. If you can’t pay your bills, it’s your own fault. Want less credit card debt? Buy cheaper stuff. Live below your means.”
Problem is, the free market…had a nice free ride capitalizing on predatory lending.. Ever wonder why they give out 2 liter sodas and pizza coupons down at college kiosks for a credit app ? Unsuspecting at the best..
Legislating is not always the way to go, but, it is a start to keep these stalwarts in check..
A bank will never lose money..credit cards are just the crux of their business model..they will engineer new ways to screw you.. These guys should work for the automotive fuel effciency industry..they can squeeze anything out of anything..
“If there were a card that offered a similar bill of rights, but didn’t offer the same perks, would you choose it? Why, then, should you be happy that the government has chosen it for you?”
Who says you HAVE to have a credit card to survive ? Are you forced to CHOOSE to have a credit card ?
Similar to you tolerating banks and their doublespeak to get cards you think fit you.. you can choose not to get cards that you don’t think fit you..
You DO have options..unlike it is portrayed or inferred..
I’m glad that this bill is finally passed. And the limitation for students and minors is what we should have anyway.
It’s when we’re still students that they put in the habit of spending using credit that when we start working, we’re already full-swing in the habit.
This is a direct consequence of all their shady dealings, and I completely agree with the terms that they have stated regarding College Students and people under 21 years of age. All the free market disciples will claim that this is unfair and that people should be able to manage their credit, etc. But when I was in college the banks would issue credit cards with ridiculous limits and interest rates to kids with no income other than student loans, me being one of them. Not everybody gets a free ride from Mommy and Daddy, and being given a credit card seems like free money to kids in college.
If you want me to feel bad for the CC Companies then keep dreaming, if they weren’t so dishonest in the first place then this bill would have never been passed. Also, there was interest cap imposed, which is what is really needed. You disagree? Then Google “The secret history of the credit card on PBS” and watch the video. Usury laws were changed in order to allow for the existence of credit cards in the first place, what does that tell you about them and the people who run them?
Watch your statements! Look for hidden notices that require an email/snail mail response to maintain your APR.Funny you should have AE on the graphic,they almost pulled it on me!
3 comments all qoutes
“There is no dignity quite so impressive, and no independence quite so important, as living within your means.”
-Calvin Coolidge
“Consider the past and you shall know the future.”
Chinese Proverb
“Blessed are the young, for they shall inherit the national debt.” –President Herbert Hoover (1874-1964)
This sucks. This is just pushing more people out of college. While I don’t believe anyone should bury themselves in debt, how can’t you with the prices of college these days?
Guys like me get screwed by this. I’m 22, live on the other side of the country from my family, and they are too stupid with debt(still are) and preoccupied with buying new cars to help their intelligent, hard-working son with paying for college.
So what does someone like me do? Parents can’t co-sign, they’re far too stretched, and I’d rather go it alone anyway, but even though I work full time, there’s no way I could afford to transfer from a community college to a University (UW) without some kind of loan that’s probably larger than this new junk allows. I mean, the point of getting a degree is so I can get a good job, pay off those loans, and then live my life with a career I enjoy.
So what, peasants like me don’t get to go to nice colleges? Awesome. When did education start to blow fundamentally to the point of money being the only thing that matters?
I think people are ridiculous for getting homes waaaay before they can even dream of affording it (albeit also overpriced) or starting a family with no direction at all career-wise, but when it comes to education, everyone should get an equal chance. If everyone gets an equal chance at education, than everyone gets and equal chance at good jobs, and when that happens, people could actually afford things like, ummmmm – homes, families, cars and things etc?
I’m hoping I’ve understood this wrong, because I’m feeling a little worried. I shouldn’t have to work for 15 years prior to going to college just to be able to pay it up front out of pocket. Oh, and prices just rose dramatically this year, and like every year now. So…
Sorry guys, guess I should have just been born to more responsible and wealthy parents. My bad. But really, do I deserve this? Is it my fault that my parents generations and the ones before way overspent and couldn’t handle themselves?
Good. If you need money for school there are student loans, grants, govt programs, financial aid.
If you need more money for chips soda pizza beer weed video games clothes etc…
GET A F&#&^@*@!NG
JOB
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Thanks, this is a good complete list of the new provisions. The new legislation is better than I thought, they seem to have addressed most of the major outrageous practices. I hope you’re right in predicting that reward programs won’t be scaled back much; I’m not so optimistic on this myself.
Since when are 18, 19 and 20 year olds minors?
“nothing here prevents credit card companies from raising rates to absurd levels”
How about the fact that people won’t borrow money at those absurd levels? Before, if you borrowed $5k at 10% and spent it on something, they could just say “You’re rate is 25% now. Pay up,” and there was nothing you could do about it, because you’ve already agreed to pay whatever interest they tell you to pay until you can pay off the loan. Now, the $5k you borrowed at 10% stays at 10%, and if you don’t want to pay 25%, just don’t borrow any more.
By the way, Chadwick, if you were really planning on paying for college with credit cards than I question your self-assessment as “intelligent”. Student loans are *not* hard to get, and if your family really doesn’t have many assets then you definitely qualify for some government loans. If you have a full-time job a personal loan from your bank might be an option. Credit cards are the borrowers absolute *last* resort; they’d easily charge you three or four times as much interest as your next best option.
I graduated last year with about $45,000 worth of student loan debt myself, and I’m paying 5% interest with NO co-signer.
Wait a sec, I just re-read your post. You’re 22? What the hell? Those limits don’t even affect you. Go ahead and put 40k on your credit cards, see if I care.
I don’t think every bill concerning credit cards will be perfect for everyone. We use one credit card for our business, a home-based one that is starting to pay for itself. A trick the credit card company used was this. We were a day late on our car payment, paid it online while out of town, and the car company didn’t care, didn’t charge us a late fee. But the credit card company got wind of it, lowered our limit to just over what we owed on the card and the interest they charged us put us over the limit. The next month they raised our interest rate. We are slowly paying them off by having garage sales, doing odd jobs and paying as much over the minimum as we can. I feel for the elderly who really got hammered, using their cards for medications and food after their benefits were slashed. We will get through this, and so will all of you who are writing. I pay more with cash now so I feel the money going out of my pocket–and I ask myself if this is something I have to have, or just want. Best of luck to you all.
New legislation is all time better than old one. But still i prefer debit card instead of this credit cards.