Credit Card Reform Goes into Effect Today

The Credit Card Accountability Responsibility and Disclosure Act, a wide-reaching set of consumer finance safety reforms, went into effect today, ending a number of practices common in the credit card industry, such as retroactive rate hikes. Signed into law last May, the new law is focused mainly on controlling hidden fees and surprise penalties that the White House said is unfair to consumers. While the legislation itself is quite extensive, some of the more prominent aspects of the new law, according to NPR, include:

• Interest Rates: Card issuers cannot increase interest rates during the first year on new accounts. In most cases, retroactive rate increases are prohibited.
• Payments and Billing: The issuer has to set the payment-due deadline on the same day each month.
• Fees: Consumers cannot be charged extra fees for making payments online, by phone or by mail.
• Disclosures: Issuers must notify cardholders of significant changes to their account terms at least 45 days before the changes take effect. If the consumer objects to the changes, he or she can close the account, or "opt out."
• Young People: Consumers younger than 21 need an adult co-signer to open a credit card. In addition, the card issuers cannot entice students to sign up by offering free pizzas or other gifts within 1,000 feet of a college campus.

According to the White House, Americans, of whom some 80 percent have credit cards, pay about $15 billion in penalty fees every day. According to the Associated Press, consumers are expected to net some $10 billion in savings from these reforms, though the Financial Times points out that this translates into a roughly $12 billion revenue shortfall for the credit card companies themselves. Consequently, the industry has been working overtime finding new revenue sources to make up for the loss; annual fees, for example, are expected to make a major comeback in the wake of the new regulations. According to the Financial Times story linked above, the credit card companies themselves will probably cut down on the number of cards they issue, leaving some “20 percent of the U.S. population… without cards as a result.”

The House Committee on Financial Services e-mailed a statement by Chairman Barney Frank (D-MA) with this example of the types of letters credit card companies have sent to customers, detailing the changes.