Boston bankruptcy clients have been asking us about applying for credit cards under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act of 2009). One “new” aspect of The Card Act, which goes into effect in October, 2011, is regulation regarding consumers who don’t have their own income. In fact, a new ruling by the Federal Reserve forbids banks and credit card issuers from issuing credit cards to folks by using “household” rather than personal, income. Household income is too vague, they say. This may adversely affect clients who have filed for a Massachusetts bankruptcy in that it will make it harder to get credit after the bankruptcy discharge. (See our Life After Bankruptcy article for more detailed information.)
The regulation does not prevent applicants from using household assets, such as savings, checking and brokerage accounts. Further, an allowance by one spouse to the other, of shown consistent and reliable, would be counted as income. Another fair way around this regulation is for a married couple to apply for a joint credit card account and have the non working spouse build up a positive credit record. Once you have the good credit record you can apply for your own card.
Other aspects of the Card Act of 2009, signed into law on May 20, 2009 by President Obama, added protections to credit card consumers. First, credit card companies must give 45 days notice before raising the interest rates on consumers. They must give the same notice for any other significant change to the policy. The issuers must inform consumers that they have the right to cancel upon being notified of the changes; if the consumer does cancel his credit card, the increases cannot be applied to the unpaid balance. Second, consumers must be given at least 21 days notice of a payment due.
There are a multitude of protections. Consumers who are subject to a rate increase because of late payments, and subsequently pay on time for six consecutive months, are entitled to have their rate reduced to the prior rate.
Another significant attribute of the Card Act of 2009 is that any payment must be applied to the highest interest rate portion of an account first. For example, if the cash advance portion of the bill has a higher interest rate, a payment must be applied toward that portion of the account before any is applied to the credit portion.
New accounts cannot be subjected to increased rates in the first year, with a few exceptions. Under the law, all statements must include information on how to secure a payoff amount, such as phone number and internet address for payoffs. And, in the law, the bill must have a font size that is adequate!
On the bill, credit card companies must provide information on how long the payoff would be if the consumer made a monthly minimum payment. Consumers have the right to limit their credit; that is, when the credit card company seeks to increase your credit limit, you have the right to limit the debt ceiling. This goes counter to the traditional more is better attitude, however, it enables consumers to have control over their credit limit. Further, fees cannot be charged for going over the limit as a way of inducing such spending.
Boston college students may be sad to learn that free pizza and other prizes are outlawed as promotional tools for credit card companies on college campuses!
Technically, the Credit Card Act was an amendment to the Truth in Lending Act along with other laws to provide for fair and open practices for consumers with credit cards and other such open ended consumer credit accounts.