By Rita R. Robison, Consumer Specialist, Blogging at The Survive and Thrive Boomer Guide

Guest Blogger

President Obama is expected to sign a credit card reform bill on Friday.

It passed the Senate Tuesday and the House Wednesday.

The new law increases disclosure requirements and sets limits on increases in interest rates and fees after consumers sign up for credit cards.

Interest rates can’t be raised during the first year after an account is open. Customers need to be notified 45 days in advance if the interest rate is increased.

If customers are more than 60 days late on payments, their interest rate can be raised on balances. However, the rate must go back to the lower rate if customers make the minimum payment on time for six months in a row.

Over-the-limit fees can’t be charged unless cardholders are told that the purchase will put them over their limit and they authorize it to go through anyway.

The bulk of the credit card requirements go into effect nine months after President Obama signs the bill into law, which will be February 2010.

The bill calls for phasing in credit card protections, with the earliest provision – giving consumers 45-day advance notice of significant changes in credit card terms – starting 90 days after enactment of the law, which is this fall.

New credit card rules approved by the Federal Reserve and other regulators in December 2008 include many but not all of the same consumer protections, reports the article “House Easily Passes Credit Card Reform Bill” on CreditCards.com.

Those rules aren’t mandatory until July 1, 2010 – allowing card issuers lead time to revamp their computer systems and business models to accommodate the changes.

Banks don’t like parts of the new law and threaten that credit cards will be less available due to its provisions.

And, to make up for losses in revenues, banks may charge annual fees for credit card use and cancel awards programs, reports the Associated Press in the article “Big Changes in Store for U.S. Credit Cardholders.”

Consumer groups warn that banks may use the nine month waiting period until the law goes into effect to continue to gouge customers with increased interest rates and over-the-limit fees.

Other provisions of the law, from the Consumer Reports blog, are:

• If your card has more than one interest rate on balances, then payments must be applied to the highest interest rate first.
• Credit card statements must be mailed out 21 days before they’re due.
• Individuals under 21 will need a co-signer on their cards unless they can prove that they have the means to make payments on their own.
• Bills can be paid online or over the phone without incurring a processing fee.
• Credit card agreements will have to be posted on the internet.
• Gift cards can’t expire for five years, and issuers can’t charge dormancy fees for unused amounts left on the card.

A coalition of consumer groups, which testified in favor of the bill, reported revolving credit – most of which is credit card debt – ballooned from $214 billion in January 1990 to about $950 billion currently.

 As family debt increases, payments on interest and late fees take an increasing portion of the household budget. The added costs of credit make it difficult to manage household incomes, especially if a family member loses a job.

The groups estimated that the average amount of debt held by households that revolve credit card balances exceeds $17,000.

While consumers who usually pay off their balances monthly are being hit by unfair credit card lending practices, card issuers are employing predatory tactics primarily targeted at the “revolvers” – those cardholders who carry a balance, the consumer groups told Congress during hearings on credit card reform.

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