How New Credit Card Rules Affect You

Credit card customers have new rights and fewer surprises on their bills, as the first provisions of President Obama's Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 go into effect Thursday.

The law, passed in May, is designed to crack down on abuses, such as high fees and penalties, by credit card companies.

CBS News financial adviser Ray Martin explained on "The Early Show" Thursday that the new law limits rate increases and fees.

Adam Levin of Credit.com, a credit education Web site, told CBS News, "When interests rates are raised, instead of 15 days they have to give you 45 days. They have to allow you to opt out if it's a rate change you can't handle and (give you) time to pay it. ... It's a positive step. But it's only the first step."

There are also changes in the billing process. Martin said before the act was passed into law, banks were required to mail billing statements out at least 14 days in advance. Now, Martin said, banks must mail bills at least 21 days before their due dates, giving customers an extra week's notice.

Martin said this helps if you're on vacation or out of town to see you have a little extra time to make a payment when you return home.

However, with this method, there's a potential downfall, according to Martin.

"With this change, you'll be receiving your bill seven days earlier, but your due date will remain the same," he said. "So this can work against you if you're the type of person that opens the bill, sees that you have three weeks to make a payment, and you bury it under a stack of other bills. My advice, as always, is as soon as you get the bill, pay the bill, because companies still have the right to charge late fees."

Changes are also being made to the way the companies notify their customers, as well. Before this law, banks were required to provide customers with a 15-day notice if they were planning to make any significant changes to fees or rates. Now, Martin said, a 45-day notice is required for a changes in rates and fees, such as increasing an interest rate.

So now, Martin said, customers will have a month to shop around for another card with better terms. Also, customers will have the right to opt out of interest rate hikes and fee increases, and cancel their accounts while paying off the balances under the old, lower interest rates, he said. Before the bill passed, Martin pointed out, companies were the ones offering opt out options at their discretion, and it was not a consumer right.

But what changes have the credit card companies been making to ensure their profits?

Martin said millions of credit card users have received letters notifying them that that their fixed rate annual percentage rates (APRs) are being switched to variable rates.

"So while the government is eliminating a card company's ability to change card terms, card companies are combating that by essentially raising interest rates by switching from fixed rates to variable rates. And because they're switching to variable rates, that means the rate will fluctuate depending on changes to the federal funds rate," Martin said.

"Right now variable rates are pretty low (3.25 percent as of July 15, 2009). But when rates begin to rise, guess what? So will your interest rate on your credit cards. Also, many companies are increasing their late fees."

And while these changes are being made to ensure consumers' rights, Martin said it's still important to stick by basic rules of credit card use:

• Pay credit card payments on time. If you do not make a payment on time, or send it in late, your interest rate is likely to go up enormously, plus you'll get hit with a late fee.
• Pay more than minimum. Always pay more than the minimum due. It's really the only way you'll make any headway in paying off your debt.
• Avoid cash advances. Never use credit cards for cash advances. You'll end up paying sky-high interest rates for cash advances.
• Read statements carefully. These new changes, as well as more changes to come, will be spelled out in letters and statements, so make sure you're up to speed and aware of the changes being made so you're not caught by surprise.

However, Martin said, these changes aren't the end of protections coming for customers. In February, Martin said, restrictions on interest rate hikes and bans on issuing and marketing credit cards to young adults, with the hope of keeping young adults from racking up large amounts of debt will go into effect. Also, cards cannot charge you a fee without permission if you go over your credit limit.

"Essentially," Martin said, "the goal of the Credit CARD Act is to regulate how credit cards are marketed, issued and billed and it's designed to keep cash-strapped Americans from falling further into debt."