Penn State expert says 'credit card bill of rights' can help consumers

University Park, Pa. -- Even though the new Credit Cardholders' Bill of Rights Act of 2009 was signed into law more than a month ago, experts are still trying to understand its ramifications. A family-finance specialist in Penn State's College of Agricultural Sciences said some of the law's features give consumers an assist in managing the credit card game in specific situations.

The new legislation includes several important changes that will curtail the cost of using credit, especially for the credit users who don't read the fine print or routinely pay attention to details, said Cathy Bowen, associate professor of agricultural and extension education.

Among the features of the new law:

-- "Universal default" disappears unless a consumer is 60 days late paying a creditor.

"Universal default allowed Lender A to increase your interest rate if they learned you were late paying Lender B, even though you were paying Lender A on time," said Bowen. "The consumer who 'occasionally' misses a payment due date because of travel, misplaced bills or general overload will welcome this feature and find it helpful for avoiding rate hikes."

-- Opt-in for over-the-credit-limit purchases. Once the legislation is effective, the consumer must opt-in, or agree, to allow charges to their credit account that exceed their approved credit limit. Opting-in allows the lender to process the charge for exceeding an approved limit. "This feature may save fees for card users who have low credit limits and for those who do not keep a running tab of charges made," she said. "If you opt-in, remember to keep a copy of the dated, signed agreement in your credit card file for reference."

-- No income, no card for those under 21. Credit seekers under the age of 21 must show proof of an independent source of income. "In other words, they must have a job or a parent’s agreement to cover the charges if they don't pay the bill," Bowen said. "Further, if a parent co-signs for the minor, the credit limit cannot be increased unless the parent approves. This feature can be the beginning of getting the nation back on a pay-as-you-go, live-within-your-means mentality. If you don't have a job or other reliable source of income, you should not be using a credit card."

-- Longer notice of payment due. The statement mailing date was increased from 14 to 21 days, thereby giving an extra week's notice to pay the bill by the due date.

-- Financial education. Finally, the law includes language that addresses the need for increased financial education for all, but especially for low to moderate-income earners.

While the provisions in the new law (all of which are effective by June, 2010) will benefit many credit users, Bowen said history has shown that the best protection against being overcharged when using credit or making a major purchase is a thorough understanding of personal options.

"The ground rules are going to be the same," she said. "A few nuances may change, but we have the foundation for how to manage our money. You just have to tweak the rest of it based on what technology is in use and what your choices are. People in the business of making money will find a way to squeeze a few extra cents from the inattentive consumer. So be aware that information and knowing how it impacts your situation are the best defense for keeping more of your money in your pocket."

Bowen has written "Cutting Credit Costs," a series of nine free fact sheets that cover such topics as annual percentage rates, credit rights, obtaining credit reports and wise credit-use strategies. The publications are available on the Web at http://pubs.cas.psu.edu/Publications.asp.

Single copies of the sheets can be obtained free of charge by Pennsylvania residents through county Penn State Cooperative Extension offices, or by contacting the College of Agricultural Sciences Publications Distribution Center, by phone at (814) 865-6713 or by e-mail at AgPubsDist@psu.edu. For cost information on out-of-state or bulk orders, contact the Publications Distribution Center.

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Last Updated November 18, 2010