Finance Space

Credit card users: Mark Feb. 22 on your calendar. That’s when the next phase of the Credit CARD Act of 2009 will take effect.

As part of the first changes, made last August, card issuers were required to give consumers 45 days’ notice before making major changes to their account and mail statements 21 days before payment is due. Next August, statements will be streamlined and language simplified to make the daunting fine print more user-friendly.

Here, meanwhile, is a rundown of the major changes coming in February this month:.

– A wait to increase rates. Interest rate increases in the first year an account is open will be a thing of the past, as will increases on existing credit card balances. But the issuer will be able to raise your rate in some instances, such as when you are more than 60 days late in paying your bill or when your introductory rate expires after six months.

Another huge exception: Issuers can raise your rate before 12 months are up if your rate is a variable one tied to an index and the index rises. These indexes are at historic lows, but when rates begin to rise to keep inflation at bay, so will your payments.

Sam Glover, a Minneapolis consumer attorney who blogs at Caveat- Emptorblog.com, says he wishes the act included interest rate limits. “I don’t understand why 30 or 60 percent interest isn’t enough and Congress isn’t willing to say it,” he said.

– Under 21? Prove you can pay. Someone younger than 21 will have two ways to get a credit card: by finding a co-signer who agrees to be on the hook for the debt or by proving that he or she has the ability to pay. How ability to pay will be assessed remains unclear. No more free T-shirts when you apply for a card, either.

This piece of the legislation is a response to the ease with which students have gotten credit cards and the high levels of credit card debt borne by some young people.

Bev Zupfer Paulus, assistant director of financial literacy at St. Catherine University, voices the hope that this rule will help curb credit card debt among some students and prevent abuse of young people by credit card companies.

But John Ulzheimer, president of consumer education for credit.com, isn’t convinced that 21-year-olds are any better equipped to handle credit than 19-year-olds. He also fears that parents and other adults asked to co-sign will thoughtlessly agree.

“The co-signer is equally liable for payment and equally at risk for damaged credit scores,” he said.

– Opt-in required for overlimit. One of the pricey fees that generate big profits for issuers is the over-limit fee charged if consumers spend more than their credit limit allows. The new rule requires card issuers to get a consumer’s permission to charge an overlimit fee.

– I’ll be paying this debt for how long? Statements will include information about how long it will take to pay off a balance by making only minimum payments as well as the payment amount needed to retire the debt in three years. This is sure to be an eye-opener, if consumers choose to pay attention.

This wave of rules also includes fee limits on subprime credit cards, an end to creditors allocating payments to maximize their profits, and no more double-cycle billing. That’s the practice of charging interest on debt that was paid off the previous month; many creditors already have eliminated this greedy behavior.

Details about the coming changes can be found at the Federal Reserve’s Web site: www.tinyurl.com/yjyybot.

This is no time for cardholders to become complacent. As we saw last summer before the CARD act’s first phase, issuers had a field day raising rates and lowering credit limits, shutting down cards and bumping up fees in order to offset lost profits.

Expect higher foreign transaction fees, annual fees and fees we’ve never heard of. Ulzheimer, of credit.com, says banks are playing “fee whack-a-mole,” the term he uses for the practice of squelching one fee only to have another fee pop up or increase.

Minneapolis-based credit score maker FICO estimates that banks will see a “more than 50 percent drop in the profitability of their previously most-profitable accounts” as a result of the CARD act.

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Tags: credit card