When it comes to disputes between credit card issuers and cardholders, it traditionally was the companies holding all the cards–so to speak. For years these companies exerted great power over consumers, charging high fees and employing a host of tricks to squeeze every extra penny they could.
Help From Congress
Then in the late 2000s the recession hit, and with it came greater scrutiny on banks and financial institutions. The timing worked out well for consumers, even if they felt the pinch of the recession. Facing shaky re-election prospects after the greatest economic collapse in recent memory, members of Congress came together to pass the Credit Card Accountability Responsibility and Disclosure Act of 2009 as a sign that they understood the pain of the average American and were doing something to alleviate the economic pressure. Approved by Pres. Obama and effective in early 2010, this legislation tightened down on credit card companies by requiring them to be more open with consumers and stop charging unfair fees.
Leveling The Playing Field
The main thrust of the legislation was to stop card issuers from taking advantage of their customers, many of whom relied on credit and could ill afford extra fees and penalties. The legislation required companies to give 45 days notice if interest rates were to increase, and customers were then given the option to either accept the increase or cancel the card and pay off the remaining balance at the lower rate. Rate increases could now only be applied to new charges, so the previous balance remained at the same interest rate as when the purchases were made. These companies could also no longer make unilateral changes to cardholder contracts.
The CARD Act, as it became known, cut down on the practices credit card companies used to charge their customers extra fees. These companies could no longer use what was known as “double-cycle billing,” which charged interest on debt when the payment was received within the grace period. If customers paid their bills on time, the companies could also no longer charge fees on the interest-only balance that remained. If the company did increase the rate as a penalty for late payment or the customer going over their limit, the rate would have to fall back to the previous level if the customer made six straight payments on time.
The legislation eliminated gimmicks as well, requiring companies to send a bill at least 21 calendar days in advance and make the due date the same each month. If this date falls on a weekend or holiday, it is moved ahead to the next business day.
When customers made payments, they now had to be applied to balances with the highest interests first, the opposite of how companies previously operated. Despite this change, monthly payments were set based on the interest payment for the lower-interest balance, giving cardholders a bit of relief. Credit card companies no longer could charge never-ending fees for customers who went over their limit, placing a ceiling on the fees they could charge. Customers also had to give consent to authorize charges over the card’s limit. If they did not give this permission, the company could not charge fees for going over the limit.
Canada Joins In
Americans with credit cards were not the only ones to feel the benefit of this crackdown. At the same time the CARD Act passed Congress, Canadian Finance Minister Jim Flaherty announced a set of reforms for credit card companies there. Like in America, Canadian banks had not begun to pass along to consumers the low lending and interest rates set by their government. As a result, Canadian officials proposed a three-week grace period on interest from new purchases and required card agreements to be more straightforward.
Help For Other Cards
The momentum from the credit card crackdown extended into the next year, when the bank reform act passed by Congress took aim at the practices of companies issuing debit cards. They too were required to simplify user agreements, and cut down on overdraft fees and complicated billing practices that placed large purchases first, causing some customers to overdraft artificially. Both credit and debit card issuers have found ways to get around these crackdowns by raising fees in other places. Bank of America instituted a new charge for replacement cards, which was higher for cards shipped by priority mail. Many institutions also dropped free checking accounts, charging for customers whose accounts did not reach a certain amount.