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Credit CARD Act of 2009 Interest

Does the Credit CARD Act of 2009 applies to existing balances at different rates, or to future balances only?

I have a question related to the Credit Card Act of 2009 I'm hoping you can answer. One of the changes that goes into effect in February requires above-the-minimum payments to be applied first to the credit card balance with the highest interest rate. I've been unable to determine if this applies to existing balances at different rates, or only future balances. In other words, if I have an account that currently has two balances at two different rates, will above-the-minimum payments be applied starting Feb 22?

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The Credit CARD Act of 2009 contains 14,500 words and includes some glaring loopholes that benefit banks I hope Congress rectifies in the future. Your question concerns two sections of the Credit CARD Act of 2009, which are reproduced and discussed below:

SEC. 104. APPLICATION OF CARD PAYMENTS.

Section 164 of the Truth in Lending Act (15 U.S.C. 1666c) is amended--

{Section (a) deleted for brevity}

(b) Application of Payments.--

   (1) In general.--Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.

   (2) Clarification relating to certain deferred interest arrangements.--A creditor shall allocate the entire amount paid by the consumer in excess of the minimum payment amount to a balance on which interest is deferred during the last 2 billing cycles immediately preceding the expiration of the period during which interest is deferred.

As you suggest in your question, the Credit Card Act of 2009 requires that banks apply payments to the balance with the highest interest rate first. In your case, this would mean just that -- your payments will pay-down the balance with the higher rate first. This part of the bill becomes effective February 22, 2010.

Regarding the second part of your question, "What about after February 22?" The following section, Section 171, prohibits retroactive interest increases and universal defaults. Section 171 is rather long, but I want to quote all of it here so you get a complete view of what it provides consumers.

SEC. 171. LIMITS ON INTEREST RATE, FEE, AND FINANCE CHARGE INCREASES APPLICABLE TO OUTSTANDING BALANCES.

(a) In General.--In the case of any credit card account under an open end consumer credit plan, no creditor may increase any annual percentage rate, fee, or finance charge applicable to any outstanding balance, except as permitted under subsection (b).

(b) Exceptions.--The prohibition under subsection (a) shall not apply to--

   (1) an increase in an annual percentage rate upon the expiration of a specified period of time, provided that--

      (A) prior to commencement of that period, the creditor disclosed to the consumer, in a clear and conspicuous manner, the length of the period and the annual percentage rate that would apply after expiration of the period;

      (B) the increased annual percentage rate does not exceed the rate disclosed pursuant to subparagraph (A); and

      (C) the increased annual percentage rate is not applied to transactions that occurred prior to commencement of the period;

   (2) an increase in a variable annual percentage rate in accordance with a credit card agreement that provides for changes in the rate according to operation of an index that is not under the control of the creditor and is available to the general public;

   (3) an increase due to the completion of a workout or temporary hardship arrangement by the obligor or the failure of the obligor to comply with the terms of a workout or temporary hardship arrangement, provided that--

      (A) the annual percentage rate, fee, or finance charge applicable to a category of transactions following any such increase does not exceed the rate, fee, or finance charge that applied to that category of transactions prior to commencement of the arrangement; and

      (B) the creditor has provided the obligor, prior to the commencement of such arrangement, with clear and conspicuous disclosure of the terms of the arrangement (including any increases due to such completion or failure); or

   (4) an increase due solely to the fact that a minimum payment by the obligor has not been received by the creditor within 60 days after the due date for such payment, provided that the creditor shall--

      (A) include, together with the notice of such increase required under section 127(i), a clear and conspicuous written statement of the reason for the increase and that the increase will terminate not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time from the obligor during that period; and

      (B) terminate such increase not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time during that period.

(c) Repayment of Outstanding Balance.--

   (1) In general.--The creditor shall not change the terms governing the repayment of any outstanding balance, except that the creditor may provide the obligor with one of the methods described in paragraph (2) of repaying any outstanding balance, or a method that is no less beneficial to the obligor than one of those methods.

   (2) Methods.--The methods described in this paragraph are--

      (A) an amortization period of not less than 5 years, beginning on the effective date of the increase set forth in the notice required under section 127(i); or

      (B) a required minimum periodic payment that includes a percentage of the outstanding balance that is equal to not more than twice the percentage required before the effective date of the increase set forth in the notice required under section 127(i).

(d) Outstanding Balance Defined.--For purposes of this section, the term 'outstanding balance' means the amount owed on a credit card account under an open end consumer credit plan as of the end of the 14th day after the date on which the creditor provides notice of an increase in the annual percentage rate, fee, or finance charge in accordance with section 127(i).

Discussion of Section 171

Interest rates cannot increase on existing balances except under one of these four exceptions:

 • A "teaser" rate period ends. Teaser rates must last six months

 • The interest rate is variable and tied to an index

 • The consumer completes the terms of a workout plan for debt repayment or fails to  comply with terms of a plan

 • The consumer is more than 60 days late making a monthly payment.

Also, every six months, a bank must conduct reviews of accounts in which interest rates have been increased based on market conditions, the creditworthiness of the card user or other factors. If those factors have changed, card issuers must if warranted cut the interest rate.

Here, the rate on your account cannot increase unless it falls under the four exceptions listed above. If you are current on your payments then your rates should not increase.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 is an amendment to the Truth in Lending Act. The Truth in Lending Act creates criminal liability for violation of its provisions, and creates a cause of action for civil action (see § 130. Civil liability). Contact an attorney in your state who has experience in consumer rights law if you believe your bank is in violation of the Truth in Lending Act.

I hope this information helps you Find. Learn & Save.

Best,

Bill

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