Money Management: New credit card rules and what they mean to you

(Prepared by the Michigan Association of Certified Public Accountants.)

Did you know that there are new rules governing the fees and penalties that credit card companies can charge you? The provisions in the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 should save consumers at least $10 billion a year, according to the Pew Foundation. The Michigan Association of CPAs explains why the changes are important, and offers some advice on dealing with credit cards.

A response to consumer concerns.
In recent years, many consumers have complained that it has become more and more difficult to understand how many credit card deals work, since companies sometimes seemed to raise their rates without notice or imposed surprise fees on bills paid even a few hours late. Consumers felt the contract terms were often not satisfactorily explained or were difficult to understand.

New disclosures.
The new rules are intended to change all that. For example, with some exceptions, the terms that you agree to when you sign up for a card must stay in place for at least one year, and even promotional rates for new account holders must last a minimum of six months. Once the credit card company raises rates, it can only apply them to new charges for cardholders in good standing. Rates cannot be applied retroactively to existing balances. And your payments must be applied to your highest interest-rate balances first. In addition, payment due dates must be clearly indicated and consistent from month to month, and the bill must be sent at least 21 days before the payment deadlines. Consumers will be told when they’re about to exceed their credit limit, enabling them to avoid over-limit fees.

Knowing where you stand.
It should also be somewhat easier to understand your credit situation. Your monthly statement will now include information on how long it will take you to pay off your outstanding balance if you pay only the minimum due or if you pay off your debt in three years, and how much you will pay in interest in each case. These disclosures may be a valuable wake-up call for many consumers who don’t realize what their outstanding balances are costing them.

Just say no.
When credit card companies are set to raise rates or impose a new fee, they must now ask customers in advance if they will accept the new terms or would like to cancel the account before those increases go into effect and pay off their balance at the old “lower” interest rates. In the past, some consumers only realized months later that their rates had been raised, but you can now opt out of any unattractive deals.

Read your mail.
Even though the new law contains many consumer protections, it’s still important to be alert to changes in the contract terms that could cost you money. That should be easier to do, because your credit card company in most cases must now let you know 45 days in advance before it can raise its interest rates, charge you certain fees or implement other significant changes.

Turn to your local CPA.
The average credit card debt per households that have cards is around $16,000. That means that many people are still racking up too much consumer debt and spending much of their hard-earned money on interest rates. If you are having trouble handling your credit card debt, or would like sound advice on managing your money, be sure to turn to your local CPA. He or she can help you find the right answers to all your financial questions.

Produced in cooperation with the AICPA.
© 2010 The American Institute of Certified Public Accountants.