Phase One of Credit Card Act of 2009 Goes Into Effect

In May of 2009, President Obama signed the Credit Card Act of 2009. The Act is designed to impose harsher restrictions on credit card companies and afford greater protections to consumers. The Act will be implemented in three phases, with the first phase having gone into effect last Thursday, August 20, 2009.

While the bulk of the Act’s key provisions will not go into effect until 2010, there are some important changes to the credit card industry brought about by the first phase. Specifically, credit card companies must now mail out credit card bills at least 21 days before their due dates and must also provide cardholders at least 45 days’ notice before making any significant changes to their rates or fees. Previously, credit card companies were required to mail billing statements 14 days in advance and provide cardholders only 15 days’ notice of changes in fees or rates.

Additionally, the Act affords consumers with the opportunity to opt out of a rate increase by freezing their current rates and paying off any outstanding balance over time under the original rate terms. In the past, cardholders were not given the option to reject the increased rates.

Phase two of the Act will go into effect in February 2010 and will place limits on interest-rate increases on existing balances. Phase three will take effect in August 2010 and will implement new disclosure rules drafted and approved by the Federal Reserve Board and other banking regulators.

While the Act will help eliminate sudden rate increases and institute new disclosure requirements, credit card industry executives and lobbyists believe the restrictions will reduce available credit and increase the cost of borrowing, at a time when credit card companies and consumers are already facing tight credit restrictions due to the existing difficulties in obtain financing.

In anticipation of the Act, many credit card companies have been raising interest rates and fees, reducing available lines of credit, and closing accounts altogether. Many banks are also paring back their rewards programs.

Posted by: Ali Razzaghi

Categories: Credit Cards