Worried about adding all that holiday shopping to your debt? Well, you may get some financial power back in 2010, when new credit card and student loan rules start leveling the playing field between customers and lenders.
A week ago, Congress approved a proposal to create a new Consumer Financial Protection Agency. The new CFPA is designed to monitor financial transactions not covered by the Truth in Lending Act — including private student loans, which are currently unregulated. If the CFPA proposal eventually becomes law, the Agency will have the authority to establish and enforce rules for private student loans.
Also, a new credit card law goes fully into effect in two months (February 22, 2010). These new rules ban or restrict unfair fees, require more transparency about credit card costs, and help consumers make more informed decisions about which credit cards they acquire and how they use them.
The Credit Card Accountability, Responsibility, and Disclosure Act:
- Requires “Plain Language in Plain Sight” explanations of both account and contract terms before consumers open an account and the activity on consumers’ accounts after the account is opened. (For example, customers must be told before they open a credit card account what fees they may be charged. Then, after the account is open, credit card statements must conspicuously display fees the consumer paid both in the current month and over the year-to-date, along with the reasons for those fees.)
- Bans unfair interest rate increases
- Bans retroactive interest rate increases for arbitrary reasons and restricts retroactive rate increases due to late payment
- Offers first year protection: Contract terms must be clearly spelled out, and they can’t be changed at all during the whole first year
- Bans late fee traps such as a too-short payment deadline, weekend deadlines, deadlines that change each month, and deadlines that fall in the middle of the day
- Requires over-payments be applied to the balance with the highest interest rate first, and bans interest charges on debt paid on time ( “double-cycle” billing)
- Requires transparency about over-the-limit fees by requiring the customer’s permission before processing any transaction that would push the account over the credit limit
- Restricts unfair sub-prime and low-limit card fees
- Limits fees on Gift Cards and Stored Value Cards and requires more transparency in the disclosure about fees
- Requires consumers under the age of 21 to provide the signature of a parent, guardian, or other individual 21 years or older who will take responsibility for the debt, or proof that the applicant has an independent means of repaying the debt
- Requires a periodic review of all interest rate increases since January 2009 and requires rate reductions when a review indicates that a reduction is warranted
- Requires the inclusion of real information about the financial consequences of decisions, including periodic statements that clearly display how long it will take to pay off the existing balance (and the total interest cost) if the consumer pays only the minimum amount due VS. the payment amount and the total interest cost if the existing balance was paid off in 36 months.
The Credit CARD Act also mandates stricter safeguards for college students and young adults, who are particularly vulnerable to sales gimmicks and traps in the fine print.
- Credit card issuers and universities will be required to be very clear about any agreements they have regarding the marketing or distribution of credit cards to college students and young adults.
- Credit card issuers and regulators will be held accountable for failure to abide by the new rules, including increased penalties for repeat violators.
Financial literacy is going to be a hot topic in 2010. Visit EducationGrant.com often for updates on new student loan regulations, credit card rules, and changes to the federal financial aid process.