First thing in the morning on December 18th, the Office of Thrift Supervision issued the first press release of the day announcing long anticipated new rules for credit card companies, and posted the 284 page document describing what they really did.

We spent all day on the 18th pouring over the rule to see how it differed from the original proposal and identified several significant changes between the proposed rule and the final rule. Meanwhile, early news articles, eager to get the word out, announced as final some proposed protections that were removed or significantly modified in the final version. These inaccuracies were amplified around the web by well intentioned bloggers so we’d like to clear up any confusion by going into a little more detail about what the rule actually says and does.

First, let's be clear what news stories and bloggers got right--the effective date.. These rules, helpful as they are likely to be, don't go into effect until July 2010. The delay makes Congressional action even more urgent.

But the rules do offer you some significant rights--so let's get down to exactly what they will do because most of the commentary out there is wrong on some key points that will affect you.

“Based on the comments and further analysis, the Agencies have revised the proposed rules substantially…the Agencies are not taking action on some aspects of the proposed rule at this time.”
Page 23 of the Final Rule

The final rule has five substantive provisions, designed to protect consumers who use credit cards from certain unfair acts or practices -- when it finally goes into effect on July 1, 2010. These five provisions are laid out in summary form on pages 24-26 of the final rule. The actual regulatory language appears on page 247-253.

Three proposed provisions disappeared entirely in the final rule. The final rule DOES NOT ADDRESS 1) fees for exceeding the credit limit because of a hold placed on the account and 2) deceptive advertisements containing multiple APRs or credit limits. Also, the Agencies removed an entire section designed to address problems with automatic overdraft programs on checking accounts and will be considering this issue in a separate proposal. We will have more information about this another day.

THE FIVE PROVISIONS IN THE FINAL RULE

1) Restricts increases in APR, especially on money you already borrowed.
Credit card issuers will be able to raise interest rates on existing balances only in the following circumstances:

- If the minimum payment is not received within 30 days after the due date.

- The card issuer sets more than one rate at the time the card is opened. The new rule allows this if the card company tells the cardholder what the new rate will be and when it will start. For example, the card could offer 3% for the first six months and then 12% after that.

- The rate increase is under a variable interest rate and following the variable rate formula for that card.

Regulators clarified the rule for rate increases on future purchases. Companies can raise the rate on future purcuases for any of the above reasons and also:

- For your existing cards, the card issuer can raise the rate (for any reason or for no reason) on future purchases with 45 days notice. The new rate can be applied to purchases made more than seven days after they send the notice. For cards you start up after July 1, 2010, companies can't raise your rates beyond the initially disclosed rates for one year, and then must give you the same 45 days notice for rate increases on future purchases.

2) Ensures payments are fairly divided among different balances:
The rule requires companies to more fairly apply the payments that cardholders make to balances with different interest rates. Companies must apply payments, in excess to the minimum, in one of these two ways:

- Apply the entire amount to the balance with the highest APR
OR
- Split the payment proportionally among the balances (pro rata rule.)

3) Ensures consumers have time to make a payment:
The final rule, as did the proposal, prohibits credit card companies from treating a payment as late unless the bill is mailed or delivered at least 21 days before the due date. However, you aren’t guaranteed 21 days if you get your bill electronically. If statements are provided and accepted only electronically, the company is permitted to deliver the statement via electronic means, less than 21 days before the due date. This provision does not apply to grace periods, so you may end up with one due date to avoid interest charges and another due date to avoid late charges. We will be writing more about this soon because its complicated and deserves its own post.

4) Eliminates two-cycle billing:
Under the rule, a credit card company cannot reach back to an earlier billing cycle when calculating the amount of interest charged in the current cycle.

5) Restricts the financing of security deposits and issuance fees:
The rule restricts credit card companies from financing fees and charges for opening a credit card where the fees and charges total more than half the credit limit.

For more information on what the rule does and does not do, explore www.creditcardreform.org.