But consumers need to be alert to take advantage of the new federal law, Miller says
(DES MOINES, IA) A federal law passed last year to give consumers more credit card protections finally takes full effect Monday.
“The law contains some very important new protections,” said Iowa Attorney General Tom Miller. “But some of the old consumer tips remain just as important now as before. Shop around for the best card. Read your billing statements every month. Read other notices that might indicate they are changing your credit card terms,” Miller said.
“And always try to pay off the entire balance or as much of it as you can,” Miller said. “Don’t just pay the minimum, or you never will get out of the debt trap.”
Some key terms of the new federal “Credit CARD Act”:
- Limits on interest rate increases:
Credit card companies must give you 45 days’ notice of any significant changes in your card terms, including your interest rate, and the interest rate on a new card cannot be increased in the first 12 months (unless an introductory rate is expiring or you have a variable interest rate card.)
Card issuers may not increase rates retroactively, on existing balances, unless you are 60 days late on a payment.
Card issuers may not automatically raise your interest rate if you are late paying on another company’s bill or payment.
“Consumers still will need to shop around for cards with the best interest rates, because the new law puts no cap on interest rates,” Miller said. “And they will need to study their bills and other communications from their card companies to be sure they notice if the company plans to change key terms on their account.”
- Card companies must provide more credit card billing information:
Card bills must tell how long it would take to pay off your balance if you only make minimum payments, and how much you would need to pay each month to pay off your balance within three years.
“I hope this is a real eye-opener to help consumers avoid the debt trap,” Miller said. “It should make it very clear that paying only the minimum is a recipe for huge expenses and mounting debt.”
The Federal Reserve rules issued recently to implement the Credit CARD Act gave an example of how a minimum-payment disclosure might look. If you owe $3,000 and your interest rate is 14.4%, and you make no additional charges, and you make only a minimum payment of $90 per month, then it would take 11 years to pay off the balance and you would end up paying an estimated total of $4,745.
- Credit card companies are now limited in marketing to students:
Credit cards may no longer be issued to anyone under age 21, unless the applicant can show adequate income or has a cosigner who is over 21 and is willing to be liable for any debts. And companies may no longer offer “free” items to students to get them to sign up for a card on or around campus, or at a college-sponsored event.
“We know that students very often fell into the debt trap, in part because cards were promoted heavily to them without any real checking on their ability to pay,” Miller said.
“These are just some of the most helpful terms,” Miller said. “But consumers still have a huge responsibility to take advantage of these rights and to make smart decisions.”
“The rules are changing in some very good ways,” Miller said, “but most of the old consumer tips remain the same: Manage your credit cards carefully to avoid expensive credit card debt. Pay on time and pay the full balance each month if possible. Avoid ‘maxing-out’ on cards or paying only the minimum amount due,” he said. “You still have to be a smart, careful and prudent consumer.”
For more information on the Credit CARD Act, go to the Consumer Financial Protection Bureau (CFPB) website.