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August 19, 2009

Yeah! Phase one of the new credit card law goes into effect tomorrow

The first phase of the new law governing credit card companies goes into effect tomorrow August 20, 2009. The first phase unfortunately does not carry the force of some of the provisions that go into effect later. Here's what the first phase means to you:

1. Currently, credit card companies only have to give you only 14 days from the date the bill is mailed to pay your bill (meaning by the time you get the bill you have maybe 12 days at best left to pay). So if you go out of town for a week vacation, under the old law you were apt to be paying a late fee since you might only have a few days to get your payment in before it is past due. Fortunately, the new law requires that credit card companies mail your bill at least 21 days before payment is due, giving you an extra seven days to pay.

2. Currently, credit card companies must give you 15 days notice before upping your interest rate, lowering your credit limit, or making other significant changes to your credit card agreement. Under the new law, the credit card company must give you 45 days notice.

3. The best part of the first phase of the credit card law is that you have the right to reject major changes to your credit card agreement, including increased interest rates, but you must close the account and agree to pay off the account in five years.

"So (consumers) can effectively convert their balance into a closed-end loan that they can pay down over five years. That's a tool that they didn't have up until now," said Eleni Constantine, the director of the Pew Charitable Trusts Financial Security Portfolio.

The next phase of the law goes into effect in February. The second phase includes a provision that prohibits credit card companies from raising interest rates on existing balances unless the borrower is more than 60 days delinquent. How awesome is that? The second phase also requires a co-signer for any credit card applicant under the age of 21 and prohibits retroactive interest rate increases.

Go President Obama for getting this one passed. The playing field just got a little more level for the little guy.

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