Just in case you weren't aware, a new piece of legislation that changes a lot of the rules in the credit card industry is coming soon.  This is most commonly referred to as the CARD act.  There are really three main parts to this, with a few important changes that you need to be aware of.  The first phase of this took place in August of 2009.  At that time two new things were introduced.

• First, credit card companies had to give more advanced notice to consumers before taking adverse action on their accounts. It used to be they had to notify you of these changes 15 days in advance, with the new act that has been increased to a 45 day notice.  Two things to this that needs to be pointed out is that they don't have to change the method of delivery, so the letters that they send you that look like junk that most people never read is still the same method, now they just have to send it 45 days before making changes to you interest rate rather than 15 days.  This also does not apply to your limit being reduced or your account being closed altogether.
• The other change that is already in place is they had to extend the grace period for when payments are due from 14 days to 21days.  This one is pretty straight forward and good for the consumer in most circumstances.

The majority of the act went into place on February 22nd of this year; some of the these will cause major chages to the industry, in my opinion, now and for years to come.

• Universal Default will not be allowed.  Currently you can have a perfect record with one of your credit cards, but be late with one of your other cards and the card that you have a perfect record with has the ability to increase your rate to the default rate.
• Protection for the "casually delinquent" borrower.  With this someone has to be 60 days late or more to have their interest rate increased on them for delinquencey.  Also, with this the consumer has the ability to earn back the lower rate.  One would  do this by paying the new higher rate on time for 6 straight payments, if they do that their rate would be moved back down to the rate it was at before it was increased.
• Over the limit-currently your credit card company will deide whether to approve your transaction or not, if that transaction would take you over your limit.  Most will because then they can tack on a $39 over the limit fee. That will change moving forward, they will not approve that transaction unless you have "opted in" which will allow them to approve that transaction if it takes you over the limit.
• Payments over the minimum have to be applied to higher interest rate balances first.  It used to be if you had a balance with a low interest rate and also a balance with a higher rate the creditor usually applied any extra payments to the balance with the lower rate.  Obviously no consumer would want to pay off the lower rate first and watch the high rate stay there, so now that will change.
• Rates have to be consistent for the first year on new accounts except if it falls into one of the following 4 circumstances:

1.  You become 60 days late, then you go into the new rule we talked about before.

2.  Your interest rate is a promotional rate.

3.  You have a variable rate that is tied to an index and that index changes, then your rate can change.

4  You are participating in a Debt Management Plan or DMP, and you fail that plan, then the rate can be increased.

• Account term disclosure has to be written in more easily understandable terms, not in legal terms that is hard to understand.  Again this may be helpful, but it assumes that people actually read it or notice it when it comes in the mail.
• Payment option flexibility-payments that are made on the day they are due will be posted to the account based off the local time.
• Borrowers under 21 will now have to have a co-signer that is over 21 or they will have to prove they have capacity to repay the debit.  Evidently the theory is that if you are 21 you are more financially responsible than someone who is 18.  This one I think comsumers need to be careful with.  If you co-sign for someone on a credit card account, you are responsible for that debt being re-paid and being paid on time.  If the person you co-sign for misses payments, you just missed a payment. Be careful about co-signing for someone, you are basically giving them free access to your checkbook.

The last part of this will take place in August of 2010; the change will be regarding gift cards.  Currently gift cards can have inactivity fees if they haven't been used in a certain amount of time which erodes the value of the card.  With the new act the value can't erode until after 5 years.  I guess lawmakers think people need 5 years to decide what to spend their $25 Target gift card on, but at any rate that is the change that will come into effect.

These are not all the changes, but they are the ones that I feel will affect the most people and that I thought were the most interesting.  The one thing I would caution people on is with these changes the credit card industry will lose billions in revenue.  They are in business to make money, don't expect them to just take this and not come up with new ways to replace that revenue.  I would not be surprised at all if you start seeing inactivity fees, yearly fees, increased fees, new made up fees, just be careful and really read your account statements and see  how things play out.  The last thing you want is to get hit with an inactivity fee on a card you don't use, then get a bill and not even pay attention to it because you know you  haven't used it, then end up  missing payments and watch you FICO score take a free fall.

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