Credit Card Act To Bring Sweeping Changes

Sweeping changes are coming to the credit card industry.

The Credit Card Act of 2009 is being hailed as the largest reform ever imposed on the credit card industry, and the move is meant to increase consumer protection -- but it could also have some negative effects for those with good credit.

In the current fast-paced world fraught with economic challenges, paper or plastic has taken on a whole new meaning. More and more people are relying on plastic for their purchases, but credit cards as we know them today are undergoing a big change.

"It's going to be a different playing field," said Michael Johnson, finance instructor at Madison Area Technical College. "It's not going to be quite as easy to get into trouble as it has been in the past."

The Credit Card Act of 2009 is 33 pages of very complicated material, but it is full of important information for those who use credit cards. For example, under the legislation, 18 to 20 year olds will no longer be able to get a credit card without a co-signer.

Another change aimed at protecting consumers adds the right of the cardholder to reject an interest rate hike.

Starting in February, when the legislation takes effect, credit card companies must inform you in writing that they're going to increase your rate -- and you can say no. The rejection would close your account, but would still allow you to continue paying off the balance at the current interest rate.

Another thing that will change is how credit card companies apply your monthly payments to your credit card balance.

As an example, say you have a $1,000 balance at 12 percent APR and then transfer $2,000 to that card at a zero-percent promotional rate. Under the act, credit card companies, would be required to use your monthly payment to pay off the balance with the larger interest rate first. Therefore, in this case, your payments would pay off the $1,000 at 12 percent first, thus preventing consumers from getting stuck with large interest charges.

Those are just a few of the major changes coming, and experts say the act will make the credit card industry a lot more consumer friendly.

"I think this is a really big step in the right direction towards giving consumers some of their rights back -- that they really should have had from the beginning," Johnson said.

If you have good credit, here's the bad news: those low, promotional rates -- like zero-percent interest -- are going to be a lot harder to find, even for those with good credit. Experts also say that it's likely that annual fees, which most credit card company have strayed from, will be making a comeback.