Credit CARD Act: What Consumers Should Know

The Credit CARD Act takes effect on February 22. This law offers several benefits for credit card users. However, it also includes gaps and loopholes. Because of this, consumers must stay alert.

Consumer attorney Lauren Bowne from Consumers Union has closely followed the law. She warns that cardholders should understand these loopholes before using their cards under the new rules.

Interest Rates Still Have No Limit

First, the law does not cap interest rates. Card companies can still charge very high rates. Although issuers cannot raise rates on existing balances unless you are 60 days late, they can raise rates on future purchases at any time.

They must notify you about these changes. However, notices often look like junk mail. As a result, many people ignore them.

Tip: Always read mail from your credit card company. Issuers must give a 45-day notice. A new rate can apply shortly after that.

New Fees Can Still Appear

Next, while the law limits some penalty fees, it does not stop issuers from creating new fees. Many companies now charge annual fees on cards that were once free. Others charge for paper statements or inactivity.

Experts expect more fees in the future. Therefore, reading your statements and notices is essential. If a fee seems unfair, you can cancel the card.

Existing Fees May Increase

In addition, card companies can raise current fees. These include balance transfer fees and cash advance fees. Over time, these costs have already increased.

If you notice a fee increase, avoid using that feature. In some cases, stopping card use may save you money.

Variable Rates Are a Major Risk

The law protects fixed-rate balances from sudden increases. However, variable-rate cards do not get the same protection. This creates a major loophole.

Many issuers now switch customers to variable-rate cards. Today, rates seem low because the prime rate is low. However, when interest rates rise, your card rate will rise too.

Best advice: Pay down balances quickly to avoid future increases.

Credit Limits Can Change Without Warning

Finally, issuers must give notice for most changes. Still, two exceptions exist. A card company can lower your credit limit or close your account without warning.

If this happens, call the issuer immediately. Ask for an explanation and request a reversal. If the limit stays lower, pay down the balance fast. A low limit can hurt your credit score.

Inactive cards face the highest risk of closure. If a closed card carries a balance, pay it off quickly. Otherwise, it may appear maxed out on your credit report.

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