what you need to know: new credit card rules

What You Need to Know: New Credit

Card Rules

Yvonne CooperDivision of Consumer & Community Affairs

Federal Reserve Board

The analysis and conclusions set forth in this presentation represent the work of the authors and do not indicate concurrence of the Federal Reserve Board, the Federal Reserve Banks, or their staff. Mention or display of a trademark, proprietary product, or firm in the presentation by the authors does not constitute an endorsement or criticism by the Federal Reserve System and does not imply approval to the exclusion of other suitable products or firms.

New law and rules

• New features– Rate & fee changes– Payments– Opt-in for going over

limit– Cards for those under 21

• New disclosures– Solicitations– Account opening– Monthly bill– Change in terms

When to look for changes

Now (some started August, 2009)

February 22, 2010 (new features)

July 1, 2010 (disclosures)August, 2010

Re-evaluation of rate increases

“Reasonable” amounts for fees

Rate & fee changes: advance notice

• 45 day advance notice– Interest rate, fees, other significant

change in terms

• You can cancel and avoid fee increase– Need to get another card

• NO 45 day notice if– Variable rate– Introductory rate expires– Don’t keep up with workout

agreement

Rate & fee changes: first year

No rate increase allowed for first 12 months UNLESS Variable rate Intro rate expires More than 60 days late paying Don’t keep up with workout

agreement

Rate & fee changes: increased rate applies only to new charges

• Old rate applies to existing balances UNLESS– Variable rate– Intro rate expires– More than 60 days late paying– Don’t keep up with workout

agreement– Rate reduced under SCRA and

SCRA no longer applies to you

• Limits on universal default

Rate & fee changes: “cure” for penalty

ratesIf you trigger a penalty rate

ANDIf you make at least minimum

payments on time for 6 consecutive months

THEN your rate should automatically go back down to the “regular” rate for your card

Rate & fee changes: limits on high-fee

cardsFees limited to 25% of initial

credit limit $300 Credit limit $75

maximum feeDoes NOT apply to late fees

and penalty fees

Payments: how long to pay off

Bill will show current balance with minimum payments & pay in 3 years Example, $3,000 balance at 14.4% Minimum payment is $60

If you make no additional charges using this card and

each month you pay. . . .

You will pay off the balance

shown on this statement in

about. . . .

And you will end up paying an

estimated total of. . .

Only the minimum payment

18 years $6,537

$104 3 years $3,713(Savings =

$2,824)

Payments: time to pay

Mail or deliver bill 21 days before it’s due

Due date is same each month (e.g. 15th or last day of month)

Payment cut-off time no earlier than 5 PM

If due date is weekend or holiday, payment is due next business day

Payments: apply to high interest first

Apply payment to highest interest first (e.g. cash advances, then purchases)

UNLESS you have a deferred interest charge (“no interest till March 2012”) Can choose to apply extra amount to

deferred interest purchase 2 months before interest starts,

payments apply to deferred interest purchase

Payments: no double-cycle billing

Only charge interest on balances in current billing cycle Double-cycle (also called 2-

cycle) billing is prohibited

Over-the-limit fees

Opt-in for going over the limit One fee per cycle Not triggered by other

fees or interest In some cases, OTL fee

limited to 3 billing cycles

Credit cards & minors

Anyone under 21 needs: cosigner or proof of ability to pay

Cosigner must agree in writing to credit limit increase

Consumers under 21 can sign up for a secured card

Students and credit cards

• No soliciting–On campus–Near campus • 1,000 feet

– At university event • Ads use words, pictures,

symbols of university

• No ”tangible item”– Intro rate is OK

Disclosures at 4 key points

SolicitationsAccount

openingMonthly billChange in

terms

Solicitations new

disclosure box

What do we want consumers to do?

Solicitations Compare offers Understand multiple interest

rates Understand fee structure

Bills Pay their bills on time Make more than the minimum

payment Avoid avoidable fees --

become aware of fees they are paying

Pay attention to changes

New monthly stateme

nt

New monthly stateme

nt

New monthly stateme

nt

Summary

of fees and

interest

Summary

of fees and

interest

New monthly stateme

nt

Overdrafts

Opt-in for ATM withdrawals Point-of-sale debits

Automatic for Checks Scheduled payments

Effective July 1

Other overdraft options

Link to savings accountOpen overdraft line of creditDon’t overdraw

Gift cards

Limits on dormancy, inactivity, and service fees Minimum of 12 months

5-year minimum expiration date

Gift cards

Excludes reloadable account substitute cards

Excludes award or promotional cards “card with purchase”

Effective August 1

Thank you!

Any questions?