By Erin O'Brien, eHow Contributor

Credit Card Laws Crash Course

How to Make the Most of Them -- and Your Money

Credit Card Laws Crash Course (photo: sjlocke/iStockphoto.com)

To actually see an end that's not 15 or 20 years out, to see that if I pay this amount for three years, the debt will be gone? I can do this.
— Sarah M.

On an otherwise unremarkable spring day, Sarah M. stepped out of her tidy suburban home and pulled a credit card bill from the mailbox, just as she had been doing for more than 20 years. The balance, payment terms and interest rate were as she expected, but there was something new on the bill. There was a chart that detailed how long it would take to pay off her $9,000 balance if she made only minimum payments.

"It was nearly 18 years," Sarah said. "I almost fell off my chair."
Another entry on the chart; however, showed how a higher monthly payment would erase her debt in only three years. It was that hard-and-fast calculation that gave Sarah new determination.
"To actually see an end that's not 15 or 20 years out," she said, "to see that if I pay this amount for three years, the debt will be gone? I can do this."
That bit of information on Sarah's bill was courtesy of the Credit Card Accountability, Responsibility and Disclosure Act of 2009. The act, also known as the Credit CARD Act, was phased in during 2010 and is helping consumers like Sarah from coast to coast.

Making the Credit CARD Act Work for You

According to the Federal Reserve, Americans carried a staggering $826 billion in revolving debt in June 2010. The Nilson Report, which compiles statistics about U.S. consumption and payments, states the average household in the United States had 5.4 credit cards as of April 2009. Almost half of the credit card users carry over a balance each month. Those balances translate into much more than the sum of items purchased with plastic. They also include a barrage of fees, interest and penalties that can inflate modest balances into lifetime loans. The Credit CARD Act aims to ease the sting for consumers, but not unless consumers stay alert. Credit card companies cannot raise your rate during the first year you have an account. This rule does not apply if you're more than 60 days late in making a payment. It also does not apply to variable rate accounts or those featuring an introductory rate. You cannot be charged over-the-limit transaction fees unless you have authorized over-the-limit transactions on your account. Play it safe by saying "no" to opt-in features.

Gift Card Rules

(photo: Philipdyer/iStockphoto.com)

Gift cards are a safe and convenient option for uncertain shoppers. Electronically loaded balances on those colorful plastic cards were sometimes misleading in the past, leaving gift recipients unhappily surprised at the cash register when unexpected fees came off their balance -- or, worse yet, when the gift disappeared all together due to an unclear expiration date.
As of August 2010, gift cards are under the umbrella of new rules, courtesy of the Credit CARD Act. This makes gift-card transactions more secure for givers and recipients.
A gift card -- both the single-store type and those that are issued under corporate names such as Visa or MasterCard -- cannot expire for five years from the date of purchase or the date of the last addition of funds.
Any fees associated with the card must be clearly stated on the card or its packaging. Fees may apply to buy or replace a card or for inactivity if you haven't used the card for a year.
Reloadable bankcards that are not gift cards and cards given as part of a reward-style program are not covered by the new rules, but the issuers still must disclose any fees or dates of expiration.

Know the Fees

Credit card bills must be mailed or delivered to cardholders 21 days before the payment due date, which is an increase from 14 days. But, don't get lax with the newly extended period. A late fee is still a late fee.
Under changes that took effect in August 2010, late-fee amounts will dip. Most often, late fees will decrease and be standardized at $25 dollars, but credit card companies can raise these fees if you have been late on a payment within the past six months. Additionally, card companies may no longer double penalize you in a single billing cycle. That means if you incur a fee for exceeding your spending limit, you may not also be charged a late fee.
If you have split-billing with different interest rates applying to certain portions of your balance, and you pay more than the minimum payment, the credit card company must first apply those additional funds to the portion of your balance that carries the highest interest rate.
Avoid costly higher-interest offers, such as cash advances, and try to keep your balance at one simple rate. Those 21 or younger have to show proof that he or she can make monthly payments; if they can't provide that, they'll need a co-signer. To get an increase in a credit limit if you are under 21, your co-signer has to agree to the increase as well. Co-signers, beware: Should the person you vouch for become unable to make the payments, the credit card company will come looking for you. You won't be free from responsibility once the person turns 21, either. If you sign on as a co-signer, it could affect your credit for years to come.

Borrower Beware

Lenders are constantly looking for ways around the new protections. Case in point, according to the National Consumer Law Center, some credit-card companies are allowing over-the-limit purchases, then charging a "late fee" instead of an "over-the-limit" fee if a purchase is not paid in full in that billing cycle.
Lauren Saunders, managing attorney at the National Consumer Law Center, advises cardholders to keep track of their balances and credit limits. "In addition to being aware that your minimum payment may be higher than you expect if you go over your limit," she said, "consumers might try calling their credit-card company and asking if they can have a 'hard' credit limit, where transactions are denied if they go over the limit."
Consumers should understand that the most effective line of defense against evasive practices is themselves. "Consumers need to read what they get in the mail from their credit-card company. They need to understand what it is that the credit card is offering them," said Susan Weinstock, financial reform campaign director at the Consumer Federation of America.
Consumers can also log on for solid guidance. The Federal Reserve's website is brimming with clear language and good advice when it comes to the Credit CARD Act and using credit cards in general. Tips include paying your bill on time, staying within your credit limit, paying more than the minimum monthly payment and reading those "change in terms" notices.
"If you're unhappy with what your credit-card company is offering, shop around," Weinstock said. The Credit CARD Act makes this easier now with a 45-day notification requirement for all major changes to your account, although some exceptions apply to accounts with variable or introductory rates and accounts more than 60 days late. It's also wise to monitor your credit report regularly, so you can keep on top of inaccuracies and address anything that might hurt your overall credit score.

A Lesson Learned

Sarah, meanwhile, is optimistic that she'll pay down her credit in three years, but she's quick to admit that it took her much longer to grasp the implication of her debt.
"It's easy to flash plastic and not think about the consequences," she said, adding that the real expense of paying with credit comes due no matter what new consumer protections are legislated.
"It costs money to borrow money."


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