On May 22, 2009, President Obama signed the credit card accountability, responsibility and disclosure act to support his efforts to reined in the march of difficult financial conditions prevailing in the U.S.A. It is a part of the American Recovery and Reinvestment Act of 2009 (ARRA) signed by Obama to fight the economic recession. His intention is to put an end to the unfair credit card practices in the market. This act has many strong provisions for the protection financial welfare of the consumers. The following paragraphs elaborate on the act from the consumer's point of view and what it has to offer to those harmed by the recession.
Not long ago, credit cards providers used to change the interest rates that were applicable to the cards. Most credit card users had no option but to accept them. Now, it won't happen that easily.
- The credit relief act has made it mandatory for the card providers to issue a 45-day advance written notice to inform their consumers of any significant changes, such as interest rate increase, annual fees related to account, cash advance fees, and fees levied for the late payments.
- However, interest rates can be increased without notice for those credit cards with variable interest rates.
- If there are any changes, the credit card provider must give you 3 billing cycles to accept them or not.
- You can choose to opt out, by canceling the card and repaying the remaining balance at the current rate.
- The practice of universal default has been banned and the act prevents companies from charging retroactive rate increases.
- In case of a new account during the first year of operation, interest rates cannot be raised. Exception to this rule is that of promotional rates lasting for minimum of 6 months.
- Unless you are 60 days past due, on your account, your interest rate cannot be increased.
- If the interest rate was raised because of the late payments, then by paying your account on time for six consecutive months, you can earn back your previous lower interest rate.
- This act does not prevent credit card provider from closing your account, lowering your credit limit, or increasing your minimum payment.
- You will be charged over-limit fee, only if, you consent to such over limit transactions, and that too, only once in a month.
- Card issuers must accept payments by mail, phone, or online free of cost. They can charge to expedite it.
- No late fee charge for payments due on holiday.
- The act states that non penalty fees cannot exceed 25% of the initial credit limit.
- The fee cannot be more than $25. However, it can be as high as $35 if you were late with a payment in the last 6 months.
- Late fee charged to you cannot be greater than your minimum payment.
- Inactivity fee, as well as fee for not charging your account now, cannot be levied.
- According to the Act, the companies must verify proof of income or else must have a co-signer before issuing a credit card to individuals under the age of 21.
- Prescreened offers can't be sent to those individuals who are under the age of 21, unless they have consented to receive it.
- There is a prohibition on offering free items in exchange of applications when marketing to students on or near campus. The days of "credit card swag" (free T-shirts, frisbees), in exchange for applications are over. However, reward programs offered are still allowed.
- It is mandatory to mail the statements, at least 21 days before your payment is due and your monthly due date must be the same date each month.
- Double-cycle billing, or the practice of calculating interest charges on both the current balance and the previous month's balance, is not allowed.
- On top of these improvements, this act also allows an American citizen to apply for a 50-60% reduction in his credit card debts of more than $10,000. In some cases, he can apply for a 70% reduction, and get unsecured loan of $30,000 reduced to $15,000 or less.
The act expects the credit card companies to be more responsible and provide a more user-friendly service to American people. They now, are accountable for issuing cards with limits that is calculated on the basis of the income of their clients. This may disappoint some people, but President Obama, by focusing on the processing methods, has taken a mighty step to minimize the chances of overspending by consumers and piling up of unpaid debts that are plugging the US economy.