Still confused about the new credit card law?

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By Consumers Union on Thursday, June 10th, 2010

Today’s Boston Globe published an article answering some of the more confusing questions people may have about the new credit card protections under the CARD Act. Check out this Q&A and hopefully get some of your questions answered.

But I’d like to add something to the reporter’s answer to the question about minimum payments. The question posed asks: My bank is requiring a higher minimum payment. Are there any rules on that?

The reporter answers the question by saying that there are limits on how high an issuer can raise a minimum payment on existing balances but no limit on raising minimum payments in the future as long as they give 45 days notice.

I just want to clarify exactly what is meant by “existing balance.” According to the law, an existing balance only occurs after a consumer has received the required 45 day notice that their interest rate is going up on future purchases. If you refer to the first question in the article, it correctly explains that all purchases made more than 2 weeks after you receive notice of a rate increase, will accrue under the new higher rate. And it is at that point that an “existing balance” is created.

The existing balance is the balance that will continue to accrue under the old, lower rate even after your rate goes up. This is the balance that is protected with respect to minimum payment increases. As the article explains, if a bank has raised your rate on future purchases and you then have an existing balance which is accruing under an old lower rate, the bank has two choices.

1) They can double your minimum payment (but not more than that!)

OR

2) They can make you pay the outstanding balance back in 5 years (but no faster!)

But if the bank has not raised your interest rate, then they can set your minimum payment as high as they’d like as long as they give you 45 days notice. And just to be clear, paying a high minimum payment is beneficial to YOU, not the bank. Although it may be difficult to pay large monthly payments to your credit card, the more you pay, the less interest you are paying to the bank!

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