How Does the New Law on Credit Cards Affect You?

The new law on credit cards will bring drastic changes to the credit card industry and will make life easier for millions of low income cardholders. Some portion of the law will be effective from August 20, 2009, while the rest will be effective from February 22, 2010.

How will it benefit you?

Credit card issuers will have to be more transparent. They must give cardholders a notice of 45 days before any hike in the rate of interest. If a cardholder is not happy with the hike, he can cancel his card and pay the outstanding balance at the existing rate. The card issuers must allow a time period of three billing cycles to the cardholders to say no to the hike.

The law prevents 'universal default' - If a cardholder is not regular in payments to the other parties, which are not related to the card issuer (for example utility companies), the issuer cannot increase the rate of interest on the credit card based on that excuse.

The cardholders must get a clearer period of 25 days before the due date to pay the balance due on their credit cards. The present minimum requirement is 14 days.

The credit card issuers will not be able to use terms like 'fixed rate' or 'prime rate' in a deceptive manner by taking out their own interpretations.

Many credit card issuers charge excessive fees to the cardholders. They will be limits on the fees to be charged when the customer goes over the credit limits. The customers must 'opt in' to the fee structure.

Allocation of payment received from the cardholder has to be fair.
Presently many card issuers apply the payments from the cardholder firstly towards the balance carrying lower interest rate. Now they must apply these payments firstly towards balances bearing higher interest rate.

The credit card issuers must inform the cardholders about the consequences of making only minimum payments every month. They must inform the period the cardholder will take to pay the entire balance if he prefers to pay only minimum payment every month.

The law aims at helping people with bad credit. The account opening fees for people getting sub-prime credit cards must not exceed 25 per cent of the limit of credit available during the first year of the card. This provision is very important because these people are required to pay an exorbitant account opening fee which eats out most of their credit limit.

This law looks good for the cardholders who are not regular in their payments. It also helps the by cardholders who are having bad credit.

However, while doing favors to these people, the good cardholders who pay their dues in full and on time will be affected. So far they are getting good rewards for their regularity. Now the card issuers will reduce or limit these rewards and perks. The grace period that is normally available on purchases may come down or may not be available. The annual fees may be revived. So 45 percent of the cardholders who manage their credit well will have to subsidize for the rest who have credit problems.

Chintamani Abhyankar, is an expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and tips on personal finance.