If you've been living in a house of cards, read carefully. Just three weeks from now -- on Feb. 22 -- the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009 goes into effect. Beware. Along with some new protections, the rules allow for more subtle and costly traps for unwary cardholders.
Americans have nearly $900 billion charged on their credit cards. More than half of those cardholders are paying only the minimum monthly payment. If you're one of them, you've likely been hit with higher interest rates and lower credit limits in the last few months, in advance of the tougher restrictions.
The CARD Act requires that the card company mail your bill 21 days before it is due, up from the current 14-day requirement. And it requires those under age 21 to have an adult co-signer who will take responsibility for unpaid balances.
You'll see one of the new benefits when you open your bill. Now the card issuer will be required to show you, in graphic format, the difference between making only the minimum monthly payment vs. paying more than the minimum each month -- a dramatic reminder of the costs of carrying a balance.
The new law does not cap interest rates, but it does limit the ability of the card issuer to raise your rates. The new rules say they can't hike your rate on existing balances unless you're 60 days late with your payment. But they can raise rates on future purchases at any time, and without giving a reason, although they must give you a 45-day warning.
Card issuers have plenty of other ways to make money off you if you're hooked on credit. That's why it's so important to read the fine print on any notice the card issuer sends you. Those costly changes may come in a separate mailing, which you might toss away as a pitch for a new card, or as a "statement stuffer" -- little sheets of paper in your bill that you routinely throw away when you open it.
Here's one trick that card issuers are using to get around the rules: The prohibition against raising rates applies only to fixed-rate cards. That's why many card issuers are now sending notices announcing that your card is now a variable-rate card -- with a rate tied to the prime rate, plus 7 or 8 percentage points. Currently, the prime rate is a low 3.25 percent. But watch out if rates start to rise again.
There are other ways the card issuers can trap you. For instance, there's no law against creating new penalties and fees on existing cards. That's why so many issuers have started to charge an annual fee. Some even charge an extra fee to receive a paper statement. Or a fee if your card remains inactive.