Personal Finance: CARD Act Impact

Michelle Singletary
Thursday, February 25, 2010; 10:02 AM

Most of the major features of the Credit Card Accountability Responsibility and Disclosure Act of 2009 are now in effect. Now we will see if this legislation will have the impact Congress intended and whether it really translates into more transparency and fairer policies for consumers.

In my Sunday column and today's column, I talk about the loopholes in the law and answer questions I've received from readers.

Given the magnitude of the CARD Act, for the next several weeks, I'll be highlighting various aspects of the new law in this e-letter, taking on one provision at a time. Up this week is the change to the industry practice called "universal default." In the past, credit card issuers reserved the right to hike your interest rate if you were late or overextended on another credit account. It didn't matter if you were a stellar customer with their card, if you messed up elsewhere, you could be dinged badly with a higher interest rate.

That practice is no more. Now issuers cannot raise your rates because you miss a payment or fall behind on a different account.

I never thought universal default was fair. What business was it of theirs if you were having trouble with another creditor? They should be worried about their own account with you. Penalizing you for behavior with another company? Totally unfair.

Here is a rundown of the new rules.

CARD Act: Provisions that are in effect now

-- Companies must notify you 45 days before raising your interest rates.

-- You can cancel your card and pay off the existing balance at the original rate.

-- You get 21 days to make a payment after a bill is delivered instead of 14 days.

-- Credit cards cannot raise rates on any existing balances. If your rate increases, it will only apply to new charges.

-- Payments will be applied to the balance with the highest interest rate first.

-- Penalty rates on existing balances can only be applied if your payment is 60 days late. If you then remain in good standing, your rate must go back down after six months.

-- Promotional rates must last at least six months.

CARD Act: Provisions that go into effect Aug. 22

-- Any penalty fees or rates must be "reasonable and proportional," as defined by the Federal Reserve.

-- Card issuers must periodically review your account and potentially reduce your rates.

I want to hear from you about all these new regulations. How are the credit card changes affecting you? Send your comments to and put "CARD Act Impact" in the subject line. If you have questions about the new law, send those too.

Here are more details on the CARD Act.

Closing charge

Ah, there is justice.

Capital One has agreed to pay $750,000 to several thousand of its credit card customers for charging them for annual fees after they closed accounts. Oh, and in the category of "they've got gall," in some cases, the company compounded the problem by charging interest and penalty fees on the unpaid annual fees.

The charges occurred from 2004 to 2006 on accounts whose annuals fees were due during the account-closing waiting period, reports Post writer Binyamin Applebaum in Capital One to repay fees to customers who sought to close credit accounts. (Feb. 19)

Read more about how this slap on the wrist to Capital One is part of a larger effort to crack down on credit card companies.

Breakfast Savings

Losing your job can force you to trim your budget, and in turn, put breakfast on the back burner. Recent research shows that as unemployment hit 10 percent, breakfast sales at fast-food restaurants took a dive, reports the Post's Ylan Q. Mui.

Prior to the recession, breakfast sales accounted for as much as a quarter of sales at some fast-food chains. And in the five years before the recession hit, breakfast sales grew 64 percent, according to NPD Group, a consumer behavior research firm.

Before losing his job, Lonnell Buford, 38, of Montgomery County, Md. used to purchase a steak, egg and cheese bagel, orange juice and coffee from McDonald's each day, but now visits the fast-food chain only twice a week and orders from the dollar menu.

"I am on a budget," he told Mui. "I need to hold on to the little bit I have."

I've always said one of the biggest busters of people's budgets is eating out. Even when the recession ends, my hope is that people continue to be frugal and eat more meals at home.

Tax Tip

The Internal Revenue Service has released guidelines for borrowers claiming the new homebuyer tax credit.

The program, which provides homebuyers with either a $8,000 or $6,500 tax credit, requires purchasers to submit documentation, such as a completed IRS Form 5045 and the settlement statement or Form HUD-1, in order to combat fraud.

Read more about this in Kenneth R. Harney's column IRS clarifies documentation needed for tax credits. (Feb. 20)

If you took advantage of the homebuyer tax credit to purchase a home, don't forget to notify the IRS of your change of address using Form 8822. The IRS provides some helpful tips on this topic.

Let's talk

Please join me next week, March 4th at noon ET, when I'll host a live chat with Thomas J. Stanley, the author of one of my favorite books, "The Millionaire Next Door." Stanley's latest book, "Stop Acting Rich . . . and Start Living Like a Real Millionaire," was my February Color of Money Book Club selection. Submit a question now or during the chat.

Upcoming events

Lots of people have been asking where they can hear me speak. If you live in the Washington, D.C. metro area, it's still not too late to get tickets to The Washington Post's Black History Month event "Reflections On The Experience: A Conversation With Washington Post Authors."

The event will be held tonight from 6 p.m. to 7:30 p.m. Doors open at 5:30 p.m. Tickets are $10 per person. Featured Post writers include DeNeen Brown, Michael Fletcher, Lisa Frazier, Kevin Merida, Lonnae O'Neal Parker, Robert Pierre and of course, yours truly.

It will take place at The Washington Post, 1150 15th Street NW Washington, D.C. 20071. For more information, call 202-334-7969 or go to the Post's Contests and Events page.

If you miss the Post event, then come by the University of Maryland, College Park, where I will be talking about my journalism career and my new book, The Power to Prosper: 21 Days to Financial Freedom.

I'll be at Maryland on Monday, March 1 at 7 p.m. at the Samuel Riggs IV Alumni Center.

On March 2 at 7 p.m., I'll be starting a three-part bible study based on "The Power to Prosper" at the First Baptist Church of Glenarden, 600 Watkins Park Drive, Upper Marlboro, Md. 20774. Call 301-773-3600 for more details. I'll be teaching from the book for three Tuesdays -- March 2, 9, and 16 -- at 7 p.m. at FBCG.

If you've been trying to find a partner with whom to start the financial fast, come on by. We will be starting the 21-day financial fast challenge together. You can also watch the bible study live online at

Tia Lewis contributed to this e-letter.

You are welcome to e-mail comments and questions to Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.

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