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With Plastic, Beware and Be Informed

By Michelle Singletary
Sunday, August 16, 2009

I was giving a talk recently and asked everyone who had credit cards to give them to me. Then I issued a challenge: Can anyone tell me at least three of the new reforms under the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009?

Several of the new rules, which aim to curb some of the worst industry practices, go into effect this month. Yet not a soul -- and there were financial professionals and even a personal finance journalist in the room -- could name one.

The requirements under the CARD Act become effective in three stages. While most of the provisions don't kick in until next year, a few key provisions go into effect Thursday. They are:

-- Creditors must provide written notice to consumers 45 days before increasing an interest rate or making a significant change to account terms. This compares with the 15-day notice currently required.

-- Creditors must inform consumers in the same notice of their right to cancel the credit card account before the increase or change goes into effect.

-- Creditors generally must mail or deliver statements for credit cards and other open-end consumer credit accounts at least 21 days before payment is due. Beginning in February, due dates must be on the same day each month. If your due date falls on a day that the creditor does not accept payments by mail (such as weekends or holidays), the creditor cannot treat a payment received the following business day as late.

The new rules are coming at a time when many cardholders are expressing frustration with the status quo. In a newly released survey by the advocacy group Consumer Action, respondents reported that their interest rates have been shooting up, minimum payments are rising and credit limits are being drastically cut.

Several major banks recently informed cardholders that they will be moving them from fixed rates to variable rates. Why?

Under the CARD Act, issuers cannot raise interest rates on existing balances except under certain limited conditions. One of those conditions is if the card carries a variable indexed interest rate.

The survey found that some card issuers boosted interest rates on purchases and cash advances by up to three percentage points between March and June. Even excellent customers who have handled their credit well are being subjected to costly, unilateral increases, the survey showed.

Grace periods -- the number of days after the close of the last billing cycle in which you can pay off new bills without being charged interest -- are shrinking. Consumer Action said one card issuer had reduced the grace period to six days. Typically issuers give cardholders a grace period of 20 to 25 days.

"We are seeing lenders make good on threats to raise the cost of credit if a new credit card law passed," said Ruth Susswein of Consumer Action.

The changes that consumers are grousing about are permitted under current law. For example, companies can offer fixed rates, but if you read the tiny print on the back of your statements, you will see they reserve the right to snatch back that rate.

I was rather hard on the cardholders in that room. When I gave their cards back, I told them they shouldn't use them again if they don't bother to study even a few of the reforms that directly impact the plastic they rely on. I challenged them to find out what the rule changes were, or put those cards away until they do. So what about you?

Can you name three changes under the CARD Act? How about two, or even one change concerning the use of your credit cards?

Or does it even matter to you?

After all, in the past, no matter what the card companies did to us -- moving the due dates; allowing people to spend over their limits, resulting in penalty fees; jacking up interest rates for no good reason -- we still played their credit card game. We complained. Perhaps you may have even canceled a particular card but then signed up with another issuer playing under the same rules.

The CARD Act will make the game a little fairer. But how will you know if the card company is abiding by the new law if you don't know what the law is?

There is something you can do: Choose to be informed.

Under the new rules, credit card issuers can't be so arbitrary about changing terms. If you want to know the provisions that will go into effect, go to http://www.consumer-action.org. In the search field, type in "New credit card provisions."

After you study the provisions, then accept the inevitable -- that the companies will probably still try to find new ways to abuse cardholders. And we'll likely still play with them.

-- By mail: Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

-- By e-mail: singletarym@washpost.com.

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