FAYETTEVILLE — February 22 new rules regarding consumer credit accounts went into effect. Many rules represent significant changes and consumers should become familiar with them, said Laura Connerly, instructor - family resource management for the University of Arkansas Division of Agriculture.

Here are some important changes:

◊ Interest rates - Introductory rates must last for at least six months. For new accounts, regular rates cannot be increased for at least 12 months unless a payment is more than 60 days late. Companies must notify consumers at least 45 days in advance of any increases in interest rates or fees.When rates do increase, they can only be applied to new purchases.

◊ Fees - Annual fees and/ or application fees are limited to 25 percent or less of the beginning credit limit. Over-the-limit fees cannot be charged unless the consumer chooses to allowover-the-limit purchases. Otherwise, if the credit limit is reached, these purchases will not be permitted. If the consumer does allow these purchases, the company can only charge one fee for them per billing cycle.

◊ Billing statements - Companies must deliver billing statements at least 21 days before payment is due and the due date should be the same each month. New statements should include information about paying off any balance due. This information will reveal how lunch it takes to pay off a balance using only the minimum payment and how much would need to be paid to eliminate the debt in three years. “Consumers typically see a considerable savings in interest paid when they pay off credit balancessooner than later,” said Connerly.

◊ Young adults - New protections will be in place. Consumers under age 21 will need proof of ability to pay or a co-signer before being approved for a credit card. Co-signers will have to agree to any limit increases.

◊ Two-cycle billing - This will be eliminated. In the two-cycle method, finance charges are based on the average daily balance of the last two billing cycles - the current one and the previous one. “Consumers who carried a credit card balance ended up paying more interest under the two-cycle billing method than the average daily balance method,” said Connerly.

The Credit Card Act was signed into law in May 2009. Provisions of the law will be implemented in stages in February, August and December 2010. More details about the rules are available in an online publication from the Federal Reserve: “What You Need to Know: New Credit Card Rules.”

-Column provided by University of Arkansas Divison of Agriculture Extension Service.

News, Pages 6 on 02/24/2010