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Starting Thursday, Credit Card Users Get More Rights

By Nancy Trejos
Washington Post Staff Writer
Tuesday, August 18, 2009

The first phase of the landmark credit card legislation signed by President Obama in May will take effect this week, forcing card issuers to give consumers more time to pay their bills and to consider interest rate increases.

Starting Thursday, issuers must give customers 45 days' notice before raising their interest rates, instead of 15 days as previously required. Customers can then choose to pay what they owe at the original rate over time but will not be able to use the card for future purchases.

The issuer reserves the right to increase the minimum payment, as a percentage of the total balance, to no more than double the percentage it had been. Card issuers will also have to mail bills 21 days -- instead of 14 days -- before the due date.

Consumer advocates praised the new rules but said significant relief will not come to cardholders until February, when most provisions of the law will be implemented. "This is a really good first step," said Gerri Detweiler, a credit adviser for Credit.com, which tracks the credit card industry.

The law will eventually prevent card companies from raising interest rates on existing balances unless the cardholder is at least 60 days late making a payment. If the cardholder pays on time for the next six months, the old rate must be restored.

Companies must also receive customer permission before allowing them to go over their limits for a fee. Interest charges on debts that are paid on time, a practice known as double-cycle billing, will be also be banned. Several other provisions of the law require better disclosure of terms and conditions.

Even with the implementation of the first phase of the law, consumer advocates warned that card companies will continue to raise rates, cut credit limits, scale back reward programs and close down inactive accounts, as they have been doing in recent months.

In a Pew report to be released next month, researchers reviewed the lowest advertised rates of nearly 400 credit cards and found that they rose two percentage points, a 20 percent increase, since December. At the same time, the target funds rate at which banks lend to each other fell by 0.75 points to nearly zero.

More than half of the cards recently surveyed by Consumer Action had gone from having fixed rates to variable rates, making it easier for companies to make future changes.

"Unfortunately, for another six months consumers are just sitting ducks for whatever abuses credit card companies can dream up," said Joe Ridout, a spokesman for Consumer Action.

Industry representatives said banks are not charging higher interest rates arbitrarily.

"The assertion that it's being done in advance of the February implementation is a red herring," said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable. "Interest rates are going up because credit scores are going down. Your credit terms are based on your individual credit profile."

But card executives have also acknowledged that the rising number of delinquencies and higher charge-off rates, in which banks give up on trying to collect a debt from a customer, have hurt their ability to generate revenue. The remaining provisions of the credit card law will make matters worse for the industry by making it more difficult for banks to set rates and fees according to customer risk, industry executives have argued.

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