Swipe. A student buys anew pair of shoes. Swipe. An entrepreneur pays for new business software. In 2009 alone, 20.2 billion credit card transactions in the U.S. totaled $1.76 trillion. Some lenders sought to maximize profits by making credit card terms and conditions hard to understand with obscure language and easy-to-ignore fine print. However, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, passed by Congress in 2009, bans harmful credit card practices and requires card companies to explain terms and conditions in plain language and post them online. It also sets new rules to protect consumers. These are a few important ones.

Rule #1: To obtain a credit card, anyone under age 21 must have a cosigner or prove their ability to pay the bill.

This rule is intended to protect young adults from entering the trap of easy credit resulting in debt. If you are having trouble getting a credit card, ask a financial institution about a secured card. The secured card's limit is equal to the deposit amount in a collateral account, which keeps spending in check and may help satisfy the ability-to-pay requirement.

Rule #2: Interest rates on new accounts are frozen for one year.

After a year, the new interest rate applies to new charges only. However, there are exceptions:

• Variable rate cards, which are linked to an index, can fluctuate with the index at any time.
• The rate can change after an introductory rate has expired.
• The rate can change if payment is over 60 days late.
• The rate can change if you are on a debt management plan and are not making the agreed payments.

Rule #3: Statements must be mailed 21 days before the due date.

This rule gives you sufficient time to send in a payment. The due date must always be the same day of the month and not earlier than 5 p.m. that day.

Rule #4: The total amount of interest accrued and a pay-off time frame must be included on the statement.

The new rules require statements to disclose how long it will take you to pay off the bill if you only make the minimum payment, and how much the payment needs to be in order to pay the full bill in three years. It also requires them to disclose how much interest will accrue for both scenarios.

Rule #5: Payments in excess of the minimum due must be applied to the balance with the highest interest rate first.

Previously, payments were often applied to balances with the lowest rate first, thus generating more money for card companies.

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Rule #6: Companies must provide 45 days notice before making any significant changes (i.e. change fees or adjust the annual percentage rate) to the terms of the card.

If you receive a change notice, you have the right to cancel the card before the change takes effect. If there is an open balance on the card, the creditor may require it to be paid within a certain time frame before the card is closed. There are exceptions to the 45-day notice rule:

• Variable rate cards can fluctuate with the index.
• An introductory rate expires and the rate reverts to the disclosed go-to rate.
• You are on a debt management plan and are not making the agreed payments.

Rule #7: Fees and rates have new limits.

Fees and rates are key components of card companies' business models. New rules set limits on how much they can charge.

• Fees that are unrelated to a penalty (such as application and annual fees) cannot exceed 25% of the initial credit limit.
• Only one over-the-limit fee may be assessed per billing cycle. Customers must opt-in to allow transactions that would put them over their limit. Otherwise, the card company has the right to decline the transaction.
• A card issuer must review interest rate increases every six months. The risk factors leading to the rate increase must be reassessed and, when applicable, the APR must be reduced. If a further increase is appropriate, the issuer must provide a written notice explaining the decision.

Rule #8: Double-cycle billing is prohibited.

This practice computed interest on the average daily balance of the previous two billing cycles--resulting in consumers paying more interest. Interest can now be charged only on balances in the current billing cycle.
 

Sources: federalreserve.gov; money.cnn.com; smartmoney.com; moneycentral.msn.com; govtrack.us; bankrate.com; creditcards.com; whitehouse.gov; nilsonreport.com; fdic.gov; investopedia.com