County of Los Angeles Department of Consumer Affairs New Consumer Laws 2010

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CREDIT CARDS

The Credit Card Accountability Responsibility and Disclosure Act of 2009, 123 Stat. 1734 through 123 Stat. 1766

Background: Many consumers complain that their credit card companies treat them unfairly. The state is generally preempted from regulating unfair credit card practices because credit cards are generally issued by banks regulated by federal laws. This new federal statute, attempts to limit some of the excesses of credit card companies.

This statute goes into effect at various times.

CCARDA provisions now in effect:

A. Requires card companies to give cardholders 45 days notice of any interest rate increases or other significant changes. If the contract provides for a particular interest for a period of time, and that period has ended, those increased interest rate changes cannot apply to completed transactions. These exceptions apply:

1. An increase in the APR applied to transactions made after a specified period of time, provided that the creditor has clearly and conspicuously disclosed this period of time and the increased APR.
2. An increase due to a variable APR as provided in the credit card agreement and according to a publicly available rate.
3. An increase due to completion of (or default under) a loan workout or temporary hardship arrangement, as long as the terms of the arrangement have been conspicuously disclosed to the consumer and the increased rate or charge does not exceed the rate or charge applied before the arrangement.

B. Gives cardholders the right to cancel their card and pay off their existing balance at the existing interest rate within 3 billing cycles after a rate increase.

C. Prevents card companies from retroactively increasing interest rates on the existing balance of a cardholder in good standing for reasons unrelated to the cardholder's behavior with that card (thus prohibiting the so-called "universal default" rate increase, increases based on late payments to other creditors).

D. Prohibits card companies from arbitrarily changing the terms of their contract with a cardholder, thus banning the so-called practice of "any-time, any-reason re-pricing."

E. Prohibits card companies from charging fees on the remaining interest-only balance of cardholders who have paid their bill on time.

F. Gives cardholders time to pay their bills by requiring card companies to mail billing statements 21 calendar days before the due date (14 days is the current minimum).

G. Requires that payments made before 5 p.m. EST on the due date are considered timely.

H. Directs card companies to provide on every statement, a phone and Internet address that a cardholder can access for payoff balances.

I. Prohibits card companies from charging late fees when a cardholder presents proof of mailing his/her bill within 7 days of the due date.

J. Establishes single, set definitions of terms such as "fixed rate" (an APR that will not change or vary for any reason over the period specified) and "prime rate".

K. In a variable rate credit card, the change in rate must be based on an index not in control of the creditor and is available to the public;

L. Gives cardholders who get pre-approved for a card the right to reject that card up until the moment they activate it without having their credit adversely impacted.

M. The rate cannot be increased because of failure to make the minimum payment unless it is 60 days overdue and if it is more than 60 days overdue and raised, the raise can only be for six months if, during that period, all minimum payment have been timely made;

N. If there is an increase in rates and the consumer chooses not to pay the full amount owed, the creditor must offer one of two options:(i) amortization of the amount owed over a period of at least 5 years or a required minimum payment on the amount owed at not more than twice the old rate.

O. If the creditor increases rates because of increased credit risk or changed market conditions or other factors, it must review those factors each six months to see whether they have changed and consider in a reasonable manner whether to reduce the increased rate;

P. Requires card companies to offer consumers the option of having a fixed credit limit that cannot be exceeded rather than a flexible rate;

Q. Prevents over-the-limit fees unless the consumer is advised of that option and specifically agrees to it.

R. Prevents card companies from charging over-the-limit fees on a cardholder with a fixed credit limit.

S. Requires card payments, after the required minimum payment, to be applied first to the debt either with the highest interest rate or pro rata. Most card companies currently require cardholders to pay off a lowest interest rate balances first.

T. Limits "over-the-limit" fees card companies are allowed to charge no more than once per cycle and for no more than three cycles. The fees must be reasonable and Regulations are to spell out the rules.

U. Requires that all fees for sub-prime cards, whose total fixed fees over a year exceed 25% of the credit limit, be paid up front before the card is issued.

Provisions effective February 1, 2010:

A. Prohibits creditors from increasing the APR, fee, or finance charge applicable to outstanding balances. Exceptions:

1. An increase in the APR applied to transactions made after a specified period of time, provided that the creditor has clearly and conspicuously disclosed this period of time and the increased APR.
2. An increase due to a variable APR as provided in the credit card agreement and according to a publicly available rate.
3. An increase due to completion of (or default under) a loan workout or temporary hardship arrangement, as long as the terms of the arrangement have been conspicuously disclosed to the consumer and the increased rate or charge does not exceed the rate or charge applied before the arrangement.
4. An increase because the cardholder’s minimum payment is over 60 days past due, provided that the creditor has notified the cardholder of the increase. The creditor must also inform the cardholder that the increase will end in six months if the cardholder makes all minimum payments on time during that period.

B. For new accounts, prohibits creditors from increasing the APR, fee, or finance charge applicable to outstanding balances. This prohibition does not apply to:

1. An increase in the APR applied to transactions made after a specified period of time, provided that the creditor has clearly and conspicuously disclosed this period of time and the increased APR.
2. An increase due to a variable APR as provided in the credit card agreement and according to a publicly available rate.
3. An increase due to completion of (or default under) a loan workout or temporary hardship arrangement, as long as the terms of the arrangement have been conspicuously disclosed to the consumer and the increased rate or charge does not exceed the rate or charge applied before the arrangement.
4. An increase because the cardholder’’s minimum payment is over 60 days past due, provided that the creditor has notified the cardholder of the increase. The creditor must also inform the cardholder that the increase will end in six months if the cardholder makes all minimum payments on time during that period.

C. Limits the ability of creditors to change the repayment terms for existing balances. Exceptions:

1. Allowing payment over a five year period, or
2. Required minimum periodic payment that includes a percentage of the existing balance equal to no more than twice the percentage required before the increase; or
3. Another method “no less beneficial to the consumer”.

D. Prohibits card companies from charging interest on debt that is paid on time during a grace period. This prevents one aspect of the so-called "double-cycle billing" practice, charging interest for the period during the grace period or based upon the average daily balance which includes all or part of the previous month.

E. Over-the-limit fees may not be charged unless the consumer has expressly elected to allow over-the-limit transactions which will result in a fee (which can be charged not more than once per billing cycle; in addition, notice must be given of the consumer’s right to revoke the election in each billing statement where an over-the-limit fee is imposed.

F. Prohibits separate payment fees for payment by mail, phone, or electronic transfer, (except for expedited service).

G. “Fee-harvester cards,” which require first-year fee payments of more than 25% of the amount of credit available cannot be deducted from the available credit.

H. Prohibits creditors from setting a payment deadline earlier than 5:00 p.m. and requires that payments must be due on the same day each month.

I. Requires that creditors consider the ability of a consumer to make the required payments before opening a new account.

J. Billing statements must state the number of months it will take to repay the entire balance if only the minimum payment is made each month and the total cost to the consumer of repaying in this manner. This information must be followed by the monthly payment amount required to eliminate the balance in 36 months and the total cost of repaying in that time.

K. Billing statements must include the payment due date, the date on which a late fee will be charged, and the amount of the late fee. If one or more late payments will result in an increased APR, the statement must also provide conspicuous notice of this fact.

L. For cards issued to those under 21, the consumer must submit a written application with either the signature of a co-signer or financial information indicating an independent means of making payments. Consumer reporting agencies cannot furnish credit reports for the purpose of making pre-screened credit offers to consumers under the age of 21, unless the consumer has expressly given consent to the consumer reporting agency.

Provisions effective August 1, 2010 (and final rules for enforcement standards within nine months)

A. A creditor who increases a customer’s APR must review the account at least once every six months to determine whether the factors which contributed to the increase have changed, and must then reduce the APR if so indicated.

B. All penalty fees are to be “reasonable and proportional” to the violation.

For more information:
County of Los Angeles Department of Consumer Affairs
B-96 Kenneth Hahn Hall of Administration
500 W. Temple Street * Los Angeles, CA 90012-2706
Telephone (800) 593-8222 (within the County) * (213) 974-1452
Web site: dca.lacounty.gov