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Key provisions of credit card reform bill

The Senate has passed a credit card reform bill that would enact sweeping new restrictions on the industry. Here is a look at some of its provisions.

Congress sent President Barack Obama a credit card holders' "bill of rights" Wednesday that would enact sweeping new restrictions on the industry. The measure offers the following protections, according to Consumers Union, publisher of Consumer Reports.

First year of new card
The bill prevents credit card issuers from raising interest rates in the first year after a credit card account is opened, except:

  • When the increase is under a variable interest rate.
  • At the end of the promised time period for a promotional rate. For example, the issuer can offer 3 percent for six months and then 12 percent after that. (The promotional period must be at least six months.)
  • If the required minimum payment is not received within 60 days after the due date.

Existing balances
Credit card issuers cannot raise interest rates on existing balances unless:

  • The increase is under a variable interest rate.
  • It is the end of a promised time period for a promotional rate.
  • The required minimum payment is not received within 60 days after the due date.

Notice of future rate hikes
After the first year, the card issuer can raise the rate on future purchases with 45 days notice. No notice is required for increases due to one of the reasons stated above.

Paying off on old terms
Card issuers can’t change the terms for repaying a balance, except that the issuer may give the cardholder either:

  • Five years to pay off the outstanding balance at the old rate; or
  • An increased minimum payment that has no more than twice as much of a contribution to paying down the balance as the old minimum payment.

Limits on fees and penalties

  • If the interest rate increases because the minimum payment is not received within 60 days after the due date, the rate must go back to the original, lower rate if the consumer makes on-time minimum payments for six months.
  • No over-the-limit fees may be charged unless the consumer has asked for the account to be set up to allow transactions that will exceed the credit limit.
  • An over-the-limit fee may be imposed only once per billing cycle if the balance is above the limit on the last day of the cycle.
  • No fees can be charged to make a payment except for expedited payments arranged through a service representative.
  • A card issuer who increases the interest rate must review the account every six months and decrease the rate if indicated by the review.
  • Penalty fees (late fee, over-the-limit fee, etc.) must be reasonable and proportional to the omission or violation. The Federal Reserve Board must issue rules to set standards to decide what fee levels are reasonable.
  • Two-cycle billing is prohibited. An issuer cannot reach back to an earlier billing cycle when calculating the amount of interest charged in the current cycle.

Ability to pay
Card issuers must consider the consumer’s ability to make the required payments under the credit card’s terms before raising limits or issuing a new card.

Fair application of payments
Amounts in excess of the minimum payment must be applied to the highest interest rate, except in the last two months before a deferred interest balance is due.

Sensible due dates, time to pay

  • Credit card issuers cannot set early deadlines for payments. Payments must be received by 5 p.m. at a location set by the issuer.
  • Due dates will be on the same day each month.
  • Card issuers must deliver the bill at least 21 days before the due date.

Young consumers

  • Before issuing a card to a person under 21, the issuer must obtain an application which contains either the signature of a co-signer over 21 or information indicating an independent means of repaying any credit extended.
  • Card issuers may not raise the credit limit on accounts held by a person under 21 who has a co-signer without written permission from the co-signer.
  • No prescreened card offers can be made to people under 21 unless they have consented to receive such offers.
  • Card issuers cannot provide tangible gifts to students on campus in exchange for filling out a credit card application.
  • Colleges must publicly disclose any marketing contracts made with a card issuer.

Credit reports
Advertisements for free credit reports must disclose that free credit reports are available under federal law at:

Issuance fees
Issuers cannot finance fees and charges for opening a credit card where the fees and charges total more than 25 percent of the credit limit.

Enhanced disclosures

  • Issuers must disclose the period of time and total interest it will take to pay off a card balance if only minimum monthly payments are made.
  • Issuer must provide 45-day written notice before raising APR or make any other significant change to the card agreement.
  • Periodic statements must clearly state the required due date and late payment penalty.
  • Credit card agreements will be posted online and the Fed must keep a public Web site providing them to the public.

— Consumers Union