Congresswoman Lucille Roybal-Allard (CA-34) is pleased to announce that the first provisions of the Credit CARD Act go into effect today (Thursday, August 20), as part of a reform package that will help protect consumers from abusive tactics that continue to drive so many Americans deeper and deeper into debt.

“With so many families struggling to make ends meet, the Credit CARD Act gives credit card customers a break from unfair and confusing credit card gimmicks,” Congresswoman Lucille Roybal-Allard said.  “The new provisions will help protect cardholders against arbitrary interest rate increases, empowers them to set limits on their credit and requires card companies to fairly credit and allocate payments. It also prohibits charging fees just to pay a bill by phone and prevents companies from excessive marketing and targeting to young people.  All of these new restrictions are intended to level the playing field and prevent the credit card industry from continuing to reap excessive profits from often unsuspecting customers.”

Starting Thursday, August 20, under the new provisions:

• Credit card companies must provide written notice to consumers at least 45 days in advance of any increases in the interest rate or other significant changes in the terms of a credit card account;

• Credit card companies must inform consumers of their right to cancel the card before rate hikes go into effect;

• Credit card companies must send statements to consumers 21 days before the due date of any payments.

Starting February 20, 2010, the new provisions:

• Ban unfair rate increases for late payments: No increased interest rates generally allowed on existing balances for any late payment, unless the customer is 60 days late. Prohibits late fees for bills due on Sunday or holidays that arrive the next day or that arrive at any time before 5 pm on any due date local time.

• Bans any universal default (which means raising rates due to a late payment to a different creditor) in the first year of any card contract, for both existing and future balances. Bans universal default permanently on existing balances.

• Requires payments to accounts with balances at multiple interest rates to be allocated more favorably to the higher interest rate balances (current practice is to apply full payment to the lowest rate instead of gearing more of the payment to the higher rate balance first).  Bans certain practices designed to collect interest on amounts already paid in previous months.

• Gives FTC greater authority over deceptive marketing of “free-to-pay” offers for products such as credit monitoring, e.g., freecreditreport.com.

• Protects young people from unfair marketing of credit cards by requiring any consumer between 18-21 to show an ability to repay or have a co-signer. Bans free gift inducements in any marketing on college campuses.

• Provides new protections for purchasers of pre-paid gift cards.