Major Changes in the Way Credit Cards Work
Saturday, May 23, 2009
President Obama yesterday signed into law a bill that would prevent credit card companies from raising interest rates arbitrarily and charging certain fees.
"Just as we demand credit card users to act responsibly, we demand that credit card companies act responsibly too," he said before signing the Credit Card Accountability, Responsibility and Disclosure Act.
Joining him on stage in the Rose Garden were several members of Congress, including Sen. Christopher J. Dodd (D-Conn.), who authored the bill, and Sen. Richard Shelby (R-Al.), the top-ranking Republican whom Dodd struck a compromise with to ensure passage. In the audience were several consumer advocates.
"With the signing of this bill, President Obama has ushered in a new era where consumer protections will be strong and reliable, rules transparent and fair, and statements clear and informative," Dodd said.
The landmark law prohibits card companies from raising interest rates on existing balances unless the borrower pays at least 60 days late. If the cardholder pays on time for the following six months, the company will have to restore the original rate.
On cards with more than one interest rate, issuers will have to apply payments above the minimum first to the debts with the highest rates. Before increasing rates, the card company will have to give cardholders 45 days' notice.
Card executives have said the changes would prevent them from properly distinguishing between risky and non-risky borrowers and force them to charge everyone higher rates and annual fees or withhold credit.
Most provisions of the law will go into effect in nine months.