As many of us struggle with the current economic conditions and life’s curve balls– unemployment, foreclosure, medical bills or divorce– missing a credit card payment can put us in a tailspin, as increased interest and added fees make it impossible to catch up on the balance.
Enter the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, put into effect February 22, 2010. Not exactly a knight in shining armor, but coming to the rescue of already distressed consumers.
How the CARD Act Affects Missed Payments
You are 31 days late with your payment to your credit card company due to circumstances that are beyond your control. Prior to the CARD Act, you knew what that meant: A higher interest rate, sometimes to the tune of 29% APR or higher. This new rate was the penalty (or default) APR you agreed to when you signed up for the credit card. You did read the fine print at the bottom of the statement, didn’t you? Well, you didn’t follow their rules and now you must pay up.
The CARD Act changed the game a little, giving you protection as a consumer. The CARD Act states the only way your credit card company can apply the penalty APR to your existing balance (i.e., purchases you have already made) is if you are 60 days late in making your minimum payment.
What a relief! Well, sort of. There are a few more twists:
- You can get your OLD rate back. So let’s say you hit the 61-day mark. You know it’s coming and you dread what your new rate may be after the penalty APR is activated. The CARD Act states that once the rate is increased on an existing balance because you were 60 days delinquent, you can redeem yourself by making consecutive payments for six months and return to your non-penalty APR.
- Your current APR can still go up on any future transactions. A rate increase that applies to future transactions does not have restrictions under the CARD Act and can happen for any reason the credit card company wants, including missing one payment, going over your credit limit or just because they feel like it (that last one’s a joke).
- The good news: they have to tell you about it. If your rate is going to increase due to your late payment, they are required to send you a notice specifying the reason for the rate increase 45 days in advance. Rate increases can only apply to purchases made 14 days after the notice was sent. Bottom line: You will know it is happening and not be ambushed after walking away from your mailbox holding your statement.
Many of you are probably wondering whether these new rules will really help you–the reality is maybe they will, maybe not. A triggered penalty rate in the past may have resulted from an accidental missed payment, or a payment lost in the mail. The new provision under the CARD Act will help individuals in these sorts of situations, as their probability to pay on time for the following six months is favorable.
For those in a financial crisis who are unable to pay their mortgage or are suffering from a job loss, however, this provision is not likely to be very helpful as there is a higher probability they will struggle to make the six consecutive payments and will be forced to keep the default APR. If you fall into the latter category, fear not, there are things you can do to improve your situation.
You may want to consider one of the many debt relief options out there. Travis has an amazing story of how he took control of his finances when it finally became just too much. Just make sure you do your research and understand what you are getting into, compare companies offering their services and, most importantly, make the commitment to get out of debt– you’ll be glad you did!
This guest post is written by Suzanne Cramer, a certified credit counselor working in the Ask the Expert forums as a coach and a Social Media Specialist for CareOne. Suzanne writes for the Divorce, Debt and Finances and A Straight Talk on Debt blogs. Follow Suzanne on Twitter where she shares the latest debt industry news and tips to keep your finances in check with her @ADivorcedMom and @AskCareOne accounts.
