New Credit Card Protection Laws Enacted For Consumers

U.S. consumers will now benefit from better regulations that protect them from the deceptive practices many credit card companies use. The most clear cut benefit of these new federal regulations is the protection from many types of interest rate hikes and late fees. While these new rules were announced on December 18th, 2008, many consumers are still unaware of the new regulations and their benefits. OTS Director John Reich was quoted as saying "I am extremely proud that OTS leadership has culminated in this important rule to ensure fair treatment for the millions of Americans who use credit cards...”

The new rule "bans practices often cited as unfair...such as raising the interest rate on an existing credit card balance when the consumer is paying the ... bill on time," this according to a Office of Thrift Supervision's press release ( The OTS is a division of the U.S Treasury Department) . Under these new regulations, consumers will also be given a reasonable amount time to make payments on their credit cards. Additionally, the credit card companies are not allowed to game the payment system to maximize profits.

A summary of the new rules, verbatim from the Office of Thrift Supervision follows:

1. Interest rate changes — The rule (Section 535.24) requires savings associations to disclose at account opening the annual percentage rates (APRs) that will apply to the account and prohibits savings associations from increasing APRs unless expressly permitted. Savings associations are permitted to increase a rate at the expiration of a specified period, provided that the increasing rate was also disclosed at account opening. Once an account has been open for a year, a savings association may increase the rate for new transactions by providing a 45-day advance notice, as required by Regulation Z. Savings associations may also increase a variable rate due to the operation of an index. Finally, they may increase a rate on existing balances when the consumer is more than 30 days delinquent in paying the credit card bill.

2. Reasonable time to pay — The rule (Section 535.22) prohibits savings associations from treating a payment as late unless the consumer has been provided a reasonable amount of time to make the payment. As a “safe harbor,” a reasonable time would be considered to be 21 days.

3. Payment allocation — When an account has balances with different APRs, the rule (Section 535.23) requires savings associations to allocate amounts paid in excess of the minimum payment using one of two specified methods: either allocating the excess payment to the highest interest balance, or proportionately to all balances.

4. Double-cycle billing — The rule (Section 535.25) prohibits savings associations from using the practice sometimes referred to as two-cycle billing, when a savings association imposes finance charges based on balances associated with previous billing cycles.

5. High-fee subprime cards — The rule (Section 535.26) prohibits savings associations from charging fees for the issuance or availability of credit that consume the majority of the available credit during the first year after account opening. Fees exceeding 25 percent of the available credit must be spread over no less than the first six months that the account is open, rather than charged as a lump sum during the first billing cycle.