What you still might not know about the CARD Act

CARD ActCongress's legislation for credit-card relief, commonly referred to as the CARD Act, goes into effect this coming Monday, Feb. 22. WalletPop and other media outlets have been covering the arrival of the new law for months now, but there are still a lot of things most Americans don't know about the CARD Act, one expert says.

This article from CardRatings.com spells out many of the major points consumers need to know, so WalletPop got in touch with Curtis Arnold, founder of CardRatings.com, to get the scoop on what people still don't know.

Arnold told WalletPop that one common misconception is that the new law sets a cap on how much interest credit card companies can charge.

It doesn't. Issuers need to give a 45-day warning if they plan to raise your rate on new purchases, but there's nothing in the CARD Act that sets a limit on how high that interest rate can be.

Arnold also told us that some of his site's users are under the misconception that their rates will never go up. This isn't true either. Card companies will no longer be able to hike rates on existing balances, but they can increase the rate for new purchases if they give a 45-day warning. They can also increase the rates on existing balances if you're more than 60 days late in making a payment.

One practice much loathed by consumers that's been eliminated is a concept called "universal default," where Card B could hike your rate if you were late with a payment to Card A, even if those two cards were issued by completely separate companies.

Arnold says this is a boon but points out what he calls a "loophole" in that provision that deals with so-called penalty rates: the percentage of interest an issuer is legally allowed to charge you if you're more than 60 days late with a payment. What's that loophole? Simply this: There is no limit on how much a card company can charge you if you're two months delinquent with your payments.

Still, this is an improvement over the former status quo, Arnold says. "It had gotten so bad out there that pretty much at any time, for any reason, they could jack up your rate," he says, calling the pre-CARD Act marketplace "the Wild West."

Arnold adds that the most important thing for consumers to remember is that they can opt out of any of these changes -- rate hikes, annual fees and so on -- but to do so, they have to close the account. If the change in question is the addition of a new fee, closing the account might be worth it.

If it's a notice of a higher interest rate on new purchases, though, you do have a bit more of a choice. You can keep the account open, keep paying it off and just make sure your family knows that the card is strictly off-limits for future purchases.

One final bit of good news for American credit card customers: The CARD Act says that any introductory or "teaser" rate offered by a credit card company has to remain in place for at least six months. This verbiage was placed into the act, according to Arnold, in order to put a stop to what he calls "bait and switch type behavior" that would reel in new customers with a promise of low rates, then spike those rates without warning.

Despite reports that credit card companies are cutting back on credit limits and perks left and right to make up for the money they're going to lose when the CARD Act goes into effect, Arnold says it's unlikely that low teaser rates will go away.

"It's too big of a marketing hook," he says. "It's an integral part of their business model."

In fact, he adds, CardRatings.com actually saw an increase in teaser rates this year. So go enjoy those low rates, but just remember: Read the fine print, and make sure you know when it's going to go up so you won't get burned.
Read Full Story