Thanks to legislation enacted by the Obama Administration, banks now have new regulations they have to follow regarding credit card terms and disclosures.  The goal is that the new laws will prevent banks from engaging in predatory lending which plunged consumers deeper into debt, and never allowed them to pay off credit card balances.

Here are several of the key differences between the old regulations and the new ones put in place:

• Before, banks could raise interest rates on your card at any time, which included the rate on existing balances.  This also included consumers who were never late on payments and had excellent credit.  Savvy borrowers would often call lenders with whom they a good credit relationship to lower their interest rate if the bank wanted to save the relationship.
• New legislation now states the interest rate cannot be raised in the first year after the account is opened unless an introductory rate has ended.So if you are told you are getting a great rate of 2% for three months, after the three month period has expired, the bank has the right to raise it to 21% if they want.  You must be notified 45 days in advance of this rate change.
• If you have an existing account, the rate can’t be changed unless the account is 60 days past due. However, if you make the payments on time for six straight months in a row, the rate must be restored to the original amount.

When it came to disclosures, this was really confusing.  The fine print was hard to read and understand, and any information regarding the fees, rates, and penalties for other things like cash advances was hard find.  It was also just about impossible to find any computation regarding how much it would take to pay the total balance off.

Now, cardholders are shown how many months it will take to pay off the credit card balance, including only paying the minimum amount.  Consumers are now also shown how much it would take a month to pay it off in three months.

This change will help you get your credit card balances down to a range which helps improve your credit score. Many use credit cards to rebuild a credit score so this is a bonus for those people.

Perhaps the biggest change has come in the way service fees are computed and shown.  Before the new law, banks could charge as much as they wanted.   Annual fees, activation fees and any other fee they seemed to pull from thin air could be marketed.

This type of lender targeted the problem credit card holders, who relied on sub-prime lending and often predatory practices.  Now, all fees must be capped at 25% in the first year – but after that, there is no cap.

Grace periods, which were a easy way for the bank to make money since they shifted the due dates around periodically, causing payments to appear late, now are required to remain consistent.  The statement has to be mailed 21 days before the payment due date, and no charged or fees can be computed before that time period.

Previously over the limit fees were charged when a cardholder exceeded their limits.  The over limit charge could also be put in place if the interest rate charge or late fee brought them over the amount.  This is no longer allowed unless the cardholder agrees to be billed if they go over their limit.  There is also a limit of being billed the over the limit fee to the billing cycle, whereas prior it could be done several times within a month.

Also, before if you were late on paying a utility bill or a loan, it was considered a “Universal Default” and would allow the credit card companies to also raise the interest rate on your credit card.  No longer.  Unless the original agreement spelled out a limited promotional amount with an increase to be determined at a later date, this is now illegal.   Also, if you have older accounts, you must be informed in writing 45 days before a new rate increase is to be applied.  You must be given the option to cancel the card and pay down the balance at the old interest rate.  The card company must review the account once every six months if you want the rate assessed and be dropped back.

College students were most often the hardest hit with credit card applications, being given the credit without having income or any background checks.  Now they can no longer be approached until they are 21 years old.  If the student wants to use a co-signor or does have substantial income they have special deals to accommodate them.  But the bottom line is, banks are no longer allowed to just hand them out to students, creating a platform for future financial situations they can’t handle.