What the new credit card law means for you

By CreditCards.com

Now that President Barack Obama has signed a federal law to protect millions of consumers who rely on credit cards, we're in a new era of managing credit. The new law contains the most far-reaching changes to the credit card industry in decades.

What will the credit card law mean for cardholders?

The new normal

Credit cards will be more transparent and easier to understand for everyday Americans. Credit cards will become more costly for all users, say issuers and industry analysts, and inaccessible for low-income families. Look for the return of routine annual fees, fewer rewards cards and the possibility that bills will be payable immediately rather than after a monthlong grace period.

Millions of credit card users will avoid retroactive interest rate increases on existing card balances and have more time to pay their monthly bills, greater advance notice of changes in credit card terms and fewer penalty fees, late charges and interest payments. The law also fundamentally changes the way credit card issuers market, bill and advertise credit cards.

Here are the highlights of the law:

Limited interest rate hikes:

Interest rate hikes on existing balances will be allowed only under limited conditions, such as when a promotional rate ends, there is a variable rate or if the cardholder makes a late payment. Interest rates on new transactions can increase only after the first year. Significant changes in terms on accounts cannot occur without 45 days' advance notice of the change.

Universal default, the practice of raising interest rates on customers based on their payment records with other unrelated credit issuers (such as utility companies and other creditors), will end.

More time to pay monthly bills:

Credit card issuers will have to give card account holders "a reasonable amount of time" to make payments on monthly bills. That means payments will be due at least 21 days after they are mailed or delivered. Consumers have complained about due dates that change without notice or are moved up, giving them less time to pay their bills and increasing the likelihood of late fees.

Credit card issuers will no longer be able to set early morning or other arbitrary deadlines for payments. Cutoff times set before 5 p.m. on the payment due dates will be illegal under the new law. Payments due at those times or on weekends, holidays or when the card issuer is closed for business will not be subject to late fees.

Highest interest balances paid first:

When consumers have accounts that carry different interest rates for different types of purchases (i.e., cash advances, regular purchases, balance transfers or ATM withdrawals), payments in excess of the minimum amount due must go to balances with higher interest rates first.

Current industry practice is to apply all amounts over the minimum monthly payments to the lowest-interest balances first -- thus extending the time it takes to pay off higher-interest rate balances.

Limits on over-limit fees:

Consumers must "opt in" to over-limit fees. Those who opt out will have their transactions rejected if they exceed their credit limits, thus avoiding over-limit fees. Fees charged for going over the limit must be reasonable.

No more double-cycle billing and lower subprime fees:

Finance charges on outstanding credit card balances will be computed based on purchases made in the current cycle rather than going back to the previous billing cycle to calculate interest charges. So-called two-cycle or double-cycle billing hurts consumers who pay off their balances, because they are hit with finance charges from the previous cycle even though they have paid the bill in full.

People who get subprime credit cards and are charged account-opening fees that eat up their available balances will get some relief under the new law. These upfront fees cannot exceed 25% of the available credit limit in the first year of the card.

Minimum payments:

Credit card issuers must disclose to cardholders the consequences of making only minimum payments each month, namely how long it will take to pay off the entire balance if users only make the minimum monthly payment. Issuers must also provide information on how much users must pay each month if they want to pay off their balances within 12, 24 or 36 months, including the amount of interest.