This post is the first of a four-part series on credit card reform. The next three posts in this series will discuss the expected effects of the credit reform bill in general as well as how credit reform may effect small businesses in particular. The series will then end off with some credit card alternatives.

Two weeks ago the US Senate approved a credit reform bill designed to add a level of regulation and control to the credit card industry which many proclaim is aimed at trapping its customers in a cycle of debt with unfair business practices and deceptive credit card offers. Here is a summary of the major changes approved by the Senate:

  • Interest rates cannot be raised during the first year of an account, and promotional rates must be in force for at least six months. After this time, should the credit card company choose to increase the interest rates, then customers must be notified about these changes at least 45 days in advance.


  • A customer must be over 60 days late on payments before the interest rate can be raised on the remaining balance. If the customer then pays the minimum payment on time for six consecutive months, then the rate must return to its previous level.


  • Bills can be paid online or over the phone without generating processing fees.


  • Over-limit fees are prohibited unless cardholders are told that the purchase will put them over their limit and they authorize it to go through anyway.


  • If your card has more than one interest rate on balances, for example one for purchases and one for transfers, then partial payments must be applied to the highest interest rate first.


  • Gift cards and gift certificates cannot expire within five years of activation, and issuers are banned from charging dormancy or inactivity fees on gift cards for unused amounts.


  • Credit card statements must be mailed out 21 days before the payment is due.


  • If the credit card company gets a payment by 5 pm on the due date, then it is considered “on time.” Also, no more late fees if the due date is a Sunday or a holiday and the payment does not arrive until a day later.


  • Individuals under 21 will need an adult co-signer on their cards unless they can prove that they have the means to make payments on their own. They must also get permission from parents or guardians to increase credit limits.


  • Credit card agreements will have to be posted on the internet

And what is missing…

The Senate rejected a proposal to cap credit card interest rates at 15%. Many claim that this measure was needed to “put real teeth into an otherwise solid bill.”

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