What You Need to Know: New Credit Card Rules Yvonne Cooper Division of Consumer & Community Affairs Federal Reserve Board The analysis and conclusions set forth in this presentation represent the work of the authors and do not indicate concurrence of the Federal Reserve Board, the Federal Reserve Banks, or their staff. Mention or display of a trademark, proprietary product, or firm in the presentation by the authors does not constitute an endorsement or criticism by the Federal Reserve System and does not imply approval to the exclusion of other suitable products or firms.

New law and rules New features – Rate & fee changes – Payments – Opt-in for going over limit – Cards for those under 21 New disclosures – Solicitations – Account opening – Monthly bill – Change in terms

When to look for changes Now (some started August, 2009) February 22, 2010 (new features) July 1, 2010 (disclosures) August, 2010  Re-evaluation of rate increases  “Reasonable” amounts for fees

Rate & fee changes: advance notice 45 day advance notice – Interest rate, fees, other significant change in terms You can cancel and avoid fee increase – Need to get another card NO 45 day notice if – Variable rate – Introductory rate expires – Don’t keep up with workout agreement

Rate & fee changes: first year No rate increase allowed for first 12 months UNLESS  Variable rate  Intro rate expires  More than 60 days late paying  Don’t keep up with workout agreement

Rate & fee changes: increased rate applies only to new charges Old rate applies to existing balances UNLESS – Variable rate – Intro rate expires – More than 60 days late paying – Don’t keep up with workout agreement – Rate reduced under SCRA and SCRA no longer applies to you Limits on universal default

Rate & fee changes: “cure” for penalty rates If you trigger a penalty rate AND If you make at least minimum payments on time for 6 consecutive months THEN your rate should automatically go back down to the “regular” rate for your card

Rate & fee changes: limits on high-fee cards Fees limited to 25% of initial credit limit  $300 Credit limit  $75 maximum fee Does NOT apply to late fees and penalty fees

Payments: how long to pay off Bill will show current balance with minimum payments & pay in 3 years  Example, $3,000 balance at 14.4%  Minimum payment is $60 If you make no additional charges using this card and each month you pay.... You will pay off the balance shown on this statement in about.... And you will end up paying an estimated total of... Only the minimum payment 18 years$6,537 $1043 years$3,713 (Savings = $2,824)

Payments: time to pay Mail or deliver bill 21 days before it’s due Due date is same each month (e.g. 15 th or last day of month) Payment cut-off time no earlier than 5 PM If due date is weekend or holiday, payment is due next business day

Payments: apply to high interest first Apply payment to highest interest first (e.g. cash advances, then purchases) UNLESS you have a deferred interest charge (“no interest till March 2012”)  Can choose to apply extra amount to deferred interest purchase  2 months before interest starts, payments apply to deferred interest purchase

Payments: no double- cycle billing Only charge interest on balances in current billing cycle  Double-cycle (also called 2- cycle) billing is prohibited

Over-the-limit fees Opt-in for going over the limit  One fee per cycle  Not triggered by other fees or interest  In some cases, OTL fee limited to 3 billing cycles

Credit cards & minors Anyone under 21 needs:  cosigner or  proof of ability to pay Cosigner must agree in writing to credit limit increase Consumers under 21 can sign up for a secured card

Students and credit cards No soliciting – On campus – Near campus 1,000 feet – At university event Ads use words, pictures, symbols of university No ”tangible item” – Intro rate is OK

Disclosures at 4 key points Solicitations Account opening Monthly bill Change in terms

Solicitations new disclosure box

What do we want consumers to do? Solicitations  Compare offers  Understand multiple interest rates  Understand fee structure Bills  Pay their bills on time  Make more than the minimum payment  Avoid avoidable fees -- become aware of fees they are paying  Pay attention to changes

New monthly statement

Summary of fees and interest

New monthly statement

Overdrafts Opt-in for  ATM withdrawals  Point-of-sale debits Automatic for  Checks  Scheduled payments Effective July 1

Other overdraft options Link to savings account Open overdraft line of credit Don’t overdraw

Gift cards Limits on dormancy, inactivity, and service fees  Minimum of 12 months 5-year minimum expiration date

Gift cards Excludes reloadable account substitute cards Excludes award or promotional cards  “card with purchase” Effective August 1

Thank you! Any questions?