Watch the Fine Print: Why Credit Card Companies May Be Changing the Terms of Your Agreement

New credit card rules designed to protect consumers come with a warning: be sure to read all the fine print on the notifications of a change of terms that come with your bill, and read it carefully.

The new rules, called for by the Credit Card Accountability Responsibility and Disclosure Act of 2009, were designed to provide fair treatment and new protections for credit card users. The new rules are being phased in gradually, with many having come into effect as of February 22, 2010, and the remainder coming by August 22, 2010.

But credit card holders should be on the lookout for a notification of changes to the user agreement being slipped into the mail with their credit card statements. Otherwise, they may be in for some surprises as credit card issuers try to find ways to make up for the revenue they stand to lose because of the new rules.

New Consumer Protection Laws Forthcoming 

Among its provisions, the Credit Card Accountability Responsibility and Disclosure Act:

• Requires card issuers to mail or deliver statements at least 21 days before payment is due.
• Requires issuers to give cardholders at least 45 days notice before changing the interest rate or making other changes, with the exception of variable rate cards tied to an index.
• Prohibits issuers from raising interest for 12 months after a card is issued, unless the rate is tied to a variable rate, in which case the rate can go up if the index rises. The rate can also jump to a previously disclosed “go-to” rate after an introductory rate expires, or it can go up if a user is more than 60 days overdue in payments to the company.
• Prohibits card issuers from raising rates on existing balances, which means any rate increases after the first year apply only to new purchases.
• Requires introductory rates to be in place for at least six months.
• Requires that any payment above the minimum be applied to balances with the highest interest rates first.
• Requires that payments always come due on the same date each month. If that day falls on a weekend or holiday, then payments are due the next business day.
• Requires companies to disclose on monthly bills the length of time it would take to pay off the balance if only minimum payments are made, and also to show what monthly payment would be needed to pay off the balance in three years.
• Requires companies to base interest only on current-month charges, and not on previous balances, banning the practice known as double-billing.
• Prohibits companies from charging a fee to users for exceeding their credit limit, unless the customer opts-in for over-the-limit purchases. If a customer does not opt-in, the credit card company can deny the purchase.
• Requires people under 21 to show they have the ability to repay the debt, or else have an adult co-sign the account.
• Requires that any expiration date on rebate or gift cards be at least five years from the date of purchase.

Possible Downsides To The New Laws, However:

While the changes protect consumers from practices that were once common, such as retroactive rate changes on existing balances, and give them more time to pay monthly bills, consumer advocates expect banks and credit card companies to find new ways to make up for lost revenue. Already some have lowered credit limits and moved from fixed to variable-interest rates, and one private-label card issuer is adding a $1 surcharge for customers who want to receive statements by mail.

Consumer advocates predict that with the new rules will come some changes negatively affecting credit card users: annual fees will become more common, foreign transaction fees will increase, once-common zero percent transfers will be harder to find, and inactivity fees may be imposed. Advocates also foresee increases in minimum due amounts, the number of “over-the-limit” fees, and efforts to charge interest from the date of purchase. People with poor credit may also have a harder time getting credit cards.

For these reasons, consumer advocates urge all credit card users to read the fine print in the inserts that come with their monthly bill. If a company is going to change the terms of its user agreement, it must notify you in writing, so paying attention to these notices will keep you up to date on the terms of your specific card before you are hit with an unexpected charge, and allow you to make informed decisions about whether to continue using it.