In 2009, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) was signed into law and on February 22, 2010, the law went into effect. The initial reaction by consumers was positive. For years, credit card users were hit with retroactive interest rate increases that boosted their minimum payments but didn’t reduce their balances. The CARD Act would eliminate this practice, along with many others, and consumers rejoiced. Unfortunately, the last year has shown consumers that there is a darker side to this popular consumer protection act.

Photo: LotusHead

Bad – Higher Interest Rates

Would you sign up for a credit card with a 79.9% APR? While one might think the answer to this question would always be a resounding no, First Premier Bank had customers willing to pay this exorbitant interest rate for the luxury of rebuilding their credit. According to an article that appeared on CNNMoney.com, consumers knowingly signed up for a credit card with a 79.9% APR. These were typically consumers with poor credit that needed a positive and actively reporting line to boost their scores.

First Premier Bank ultimately decided that the 79.9% mark was too high as many customers went straight to charge off so they decided that 59.9% was the sweet spot – that the card is marketable and has a measure of success with this interest rate.

First Premier Bank has done this because of the CARD Act. Prior to its passing, they could charge higher risk individuals more fees to cover their bottom line. Now, all customers must be held responsible for the risk and so fees and extravagant interest rates are shared by all.

Bad – Higher Fees

Speaking of fees – they’re back! For years the majority of credit card holders did not have to pay an annual fee. Banks made their money from a variety of fees including late payment fees and over the limit fees. Additionally, the retroactive interest rate hikes helped keep many credit card issuers in the black. With new guidelines being placed on all of these types of fees, annual fees are back. If you have an open credit card account that you don’t actively use, make sure to check your balance monthly. You don’t want that surprise $39 fee membership fee to go without notice and accrue late fees and additional interest.

Good – No Credit Cards for College Students

Fresh out of high school and out on their own for the first time, college freshmen used to be bombarded with credit card offers the minute they stepped foot on campus. To help entice these students, banks would often give away free swag – want a free t-shirt? Just sign up for a new credit card. It’s easy, sign here! Then a few weeks later a credit card with $500 of available credit shows up in the mail. For many college students this was “free” money. Unfortunately, this turned out to be quite a large problem for students that fell prey to the sales pitches.

The CARD Act prohibits credit cards from being issued to college students unless co-signed by a parent or if the college student has the ability to pay the bill, for example by having a job. However, there has been a bit of controversy brewing recently because some banks are considering student loans as income when determining if a college student has the ability to repay a credit card bill. Loans simply aren’t the same thing as income and so it looks like this may be one way that banks are trying to get around this stipulation.

Good – Easier to Understand Statements

One of the most obvious positive effects of the CARD Act shows up in your monthly statement. Now consumers will see a box on their statement that shows them how long it will take to pay off their credit card if they only make the minimum payment. This is usually upwards of 20 years for a medium-sized credit card balance. Banks also show you a second option, which includes a slightly increased monthly payment. If you make this new payment each and every month your balance will paid off in about three years. This is a huge difference and allows customers to instantly see the benefits of paying more than the minimum without trying to create their own amortization schedule.

As more time has passed since the CARD Act became an active law, there have been many unexpected negative side effects of the legislation. While the main purpose of the act was to increase consumer protection, consumers need to take personal responsibility and understand how credit card accounts really work. The CARD Act does offer new protections but in the end, consumers should be accountable for their own financial security.

The CARD Act goes into effect today, February 22, 2010. This Act was established to protect credit card consumers and is monumental because it will change the way credit card companies do business. It entails the most significant changes ever to be made in credit card history.

What will the Act entail?

1. There will be new limits on rate increases.
2. It will prohibit credit card companies from ‘surprising’ consumers.
3. Credit card lenders will have to do a better job informing the consumer regarding interest rate increases and fee increases.
4. It will make it much more difficult for consumers under the age of 21 to qualify for a credit card.
5. Interest rates will not be allowed to undergo an increase until after the account has been open for at least 12 months.
6. Credit card companies will not be allowed to charge “over limit” fees unless the consumer specifically allows over limit charges.
7. Monthly credit card statements will have to undergo a face-lift. Each statement must contain detailed information, including a detailed pay-off plan. This plan will show you how long it will take to pay off the balance on your credit card by only making minimum payments.
8. If the interest rate is increased after one year, the new interest rate will only affect new charges. It will not affect the previous balance at all.

Congress is hopeful that the Act will place more power in the hands of consumers. Of course, credit card companies will still have access to a wealth of power. Lenders will seek other avenues for the amount of lost revenue provoked by the Act.

However, the Act is not a “saving grace” for credit card holders. Some credit card holders believe that all of their credit card problems will be solved by the bill. Many people need to realize that if you have gotten out of the habit of reading everything from your credit card company, the Act isn’t going to do much for you. You will be required to change your old habits and start reading every correspondence between you and your lender.

The CARD Act of 2009 is here to help the millions of credit card holders around the country. But, it isn’t here to save you from all of your credit card woes. Learn as much as you can and be sure to read everything that your credit card company sends you.