Credit Card Act of 2009

On May 20th, Congress passed the Credit Card Act of 2009, which offers some long overdue protections to consumers.

New rules for applying credit card payments. First, the deadline forpayments has been standardized to 5 p.m. on the due date. (Companies can no longer charge late fees by stipulating, for example, that the payment has to be there before 2 p.m.) Second, companies must now apply payment to the debt with the highest interest rate. (Some were doing the opposite: if you had a balance at a low promo rate and another balance at a higher rate, they applied all payments first to the promo-rate balance.)

“Opt in” for over-the-limit charges. Credit card issuers can no longer allow you to go over your limit and then charge you a fee—unless you give them permission. If you want to be allowed to charge over your limit, you’ll now have to “opt in” to this type of program.

45 days notice for changes to credit card terms. No longer can credit card companies change terms retroactively or with little or no notice. You’ll have 45 days to decide whether you want to accept any changes—and to use your rewards before they disappear (should that be the change)!

Under 21s will need a co-signer. Beginning next February, no one under the age of 21 can get a credit card without a co-signer—unless he or she can document an independent income that would support monthly payments.

No universal default. Until now, a lender was permitted to change the terms of a loan from the normal terms to the default terms (i.e., the terms and rates given to those who have missed payments on a loan) if you missed a payment with any lender. Now he can do so only if you miss a payment with him.

What’s the bottom line? Credit card companies have for years been adding insult to injury. With this new legislation, some of the insult is removed. The fundamental credit terms, however, remain injurious to an overshopper. This is particularly true for minimum payers, whose credit card debt can easily outlive them:

Credit Card

Balance

2% Minimum

Payment

Annual Interest Rate Total Interest Paid Payoff Period
$10,000 $ 200 18% $ 28,930 57 yrs 6 mths
$20,000 $ 400 18% $ 58,932 69 yrs 2 mths
$30,000 $ 600 18% $ 88,931 75 yrs 8 mths
$40,000 $ 800 18% $118,930 80 yrs 1 mths

So: cheer quietly for the new protections from Congress, and then, if you incline toward overshopping, protect yourself: never, never shop with a credit card.

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