A new legislation has recently made its debut into the House of Representatives that may be of interest to anyone who carries a credit card. The proposed legislation is aptly titled “The Credit Cardholders’ Bill of Rights Act” and would bring about a number of changes to the currently established credit card industry by legally empowering the individual cardholders with more rights regarding how their credit cards are billed, how their interest rates are adjusted, and how their payments are received. Let’s take a look at a couple of the highlights of this potentially momentous legislation.

Prohibition of Retroactive Rate Hikes

As presently established, the interest rate on your purchases can be changed after the purchase due to something called retroactive rate hiking. This practice enables the issuers to adjust your interest rate upwards on existing balances if your credit score experiences any decreases after that balance has been acquired.

For example, let’s say that Paul buys a new laptop using his credit card, charging $1,500.00 to the card at the established 9% interest rate. Let’s also say that for one reason or another, Paul’s credit score drops 20 or 30 points a couple weeks after his purchase. If an issuer practices retroactive rate hiking, they can and will increase the interest rate being charged on that $1,500.00 to something higher, like 12 or 13 percent! Suddenly, Paul is forced to pay more for that laptop than he first thought. This practice can be financially devastating, and it’s akin to changing the rules of a chess game halfway through the match, you simply wouldn’t have made some of the moves you chose to make if you knew that the rules were going to change partway through the game. The unfairness of this practice is one reason why it is a primary target for regulation by the new legislation.

The Elimination of Double-Cycle Billing

Double-cycle billing has widely been discontinued, however the practice still remains in effect amongst a few card issuers. What double-cycle billing entails is how your issuer calculates the interest that you’ll be charged on your card balance. Essentially it enables the card issuer to charge you interest based off of the average balance across two billing cycles. Thus, even if you pay off your balance during the grace period, you would still be charged interest on your account if you had any sort of balance at all over the billing cycle before the most recent one. It’s confusing to even think about, as it requires you to take into account credit card decisions that may have been made up to three months prior!

Needless to say, this practice is an unnecessarily confusing way to squeeze more finance charges out of us hapless consumers and thus stands near the top of the list of things to be eliminated by the proposed law.

No More Groundless Hikes on Interest Rates

Another of the major proposed changes introduced with the credit card bill of rights act is the elimination of an all-too-common technique currently in practice across a wide range of credit card issuers: the arbitrary and often groundless hikes in credit card interest rates. With the present set up, most credit card issuers reserve the right to change the terms of the credit agreement “at any time and for any reason.” In many cases, consumers argue, “any reason” translates into “no reason” as far as they are able to perceive. This bill, if passed, would entitle consumers to some measure of legal protection, forcing issuers to document the reason for hiking the interest rate as falling within the predetermined boundaries established up front in the credit card agreement.

Clarification of Payment Deadlines

I’m sure I’m not the only one out there who’s been skewered by the often vague and poorly defined payment deadlines associated with one or more credit cards. Another great (for consumers) point included in the Credit Card Bill of Rights is the mandatory requirement for universal payment deadlines, with 5pm Eastern time being the proposed deadline for credit card payments.

Furthermore, this point would also require card issuers to be conscientious in giving the consumer adequate time to pay the credit card bill, requiring that said bills would be mailed out at least 25 days before the payment is required. This would seriously decrease the likelihood of lost or delayed mail costing someone hundreds of dollars in unnecessary late fees and unpaid financing charges.

Equal Division of Payment Across Multiple Interest Rates

One of the largest frustrations commonly experienced by the typical cardholder in today’s billing environment is that the payments they make to their credit card are automatically applied to the balance with the smallest interest rate instead of the highest. For example, suppose that Billy-Bob transfers his balance of $150 to a new card that has a 0% introductory balance transfer offer and a 15% (ouch!) interest rate on purchases. Suppose furthermore that Billy-Bob buys a fashionable coon-skin hat for $150, bringing his total balance up to $300, half of which is under the 0% balance transfer, the other half of which is under the 15% purchasing costs. If Billy-Bob makes a payment at the end of the month of $150.00, guess which part of his balance gets paid off? That’s right, the 0% half, forcing him to accrue 15% on his remaining balance (for a nasty total of $22.50 in finance charges!).

Many regard this behavior on the part of the issuer as being unfair, so one of the chief aims of the legislation is to force issuers to evenly divide payments across balances of all interest rates. Thus, in Billy-Bob’s case, his payment of $150.00 would be neatly divided between his 0% balance and his 15% balance, which means that interest would only accrue on $75.00 worth of purchases, saving him $11.25 that he would have been forced to pay under the present circumstances.

Ultimately, it is up to Congress whether or not this bill will pass, but as consumers, it is our duty not only to remain educated on the subject, but to be willing to show our support of the bill when the time comes. Be sure to write your representative a ‘friendly’ reminder to do the right thing!

Related posts:

1. Obama proposes Credit Card ‘bill of rights’
2. Where The Credit Cardholders’ Bill of Rights Stands
3. The Credit Cardholders Bill of Rights
4. Credit card bill on the way… (We hope!)
5. Got a Credit Card? Vote Obama!