What is the Dodd-Levin Card Act?

The Credit Card Accountability, Responsibility and Disclosure Act, CARD Act for short, is designed to help protect consumers from predatory credit card company policies. Unfortunately it won’t take effect for 9 months, and the general feeling is the companies will do what they can before then to get as much of your money as possible.

The Basics:

Prior notice on rate increases – gives you the opportunity to cancel prior to the increase, locking in your remaining balance at the lower rate.

Interest rates and fees frozen on cancelled cards – the reason why you might cancel; see the previous protection. In addition, you will not be required to pay the full balance on cancellation, but can continue under the terms prior to the cancel.

Limits on fees and interest – you will have the opportunity to opt-out of over-the-limit transactions. These purchases the creditor authorizes but collects a fee from you, thus allowing you to over-extend your credit limit, for a price. In the future you will be able to prevent the creditor from doing this (also stopping any purchase when you are at your limit).

No interest charges on fees – means you won’t be charged interest on cash advance fees, late fees, over-the-limit fees or balance transfer fees. Realize this only applies to the fee portion, and not the actual cash advance or transferred balance.

Application of payments – forces the companies to apply your payment to the highest interest portion first, and apply the payment in such a way as to minimize the finance charge you may incur.

Billing period length – has been extended a week; the minimum mailing now must occur 21 days prior to due date.

In addition, there are enhanced penalties for the companies and additional oversight by the government to protect you.

For Younger Consumers:

Co-signer required for under 21 without income – protects students by requiring parental signature. Can be circumvented by completing a certified financial literacy or education course designed for young consumers. My bet here is it will be a simple test or short course that most likely will have little impact on the spending habits of student-age consumers. I say this even with the Act specifying that the OFE (Office of Financial Literacy and Education) has to certify courses and will use the criteria that the courses have proven to change behavior.

Affinity cards also fall under this requirement, and for students, especially, this appears to be a trend, or at least something I’ve personally experienced when one of my children attended college. The college basically forced the students to enroll in their credit card program because that was the least painful way to receive refunds. (The check in the mail took months, as I recall.)

Parental approval is required prior to raising rates on any card the parent has co-signed.

What does this mean for you?

If you are carrying large balances over multiple cards, the next few months could be challenging. Watch carefully how the banks manage their credit card fees and rates, and if you find one changing too rapidly against you, cancel it and move the balance to another (unless they let you maintain at the previous lower rate).

Consolidating your debt is another way to minimize your exposure to hostile credit card company practices. The faster you can pay it off, the better off you’ll be in the long run.

Finally, if possible, restrict your card spending until you regain control.