How The CARD Act Changed Promotional Financing Offers
The CARD Act of 2009 is one of the most significant pieces of personal finance legislation in a decade. With its passage and implementation, card issuers faced new regulations that forbid many of their most unfair and deceptive practices. Those who take advantage of promotional financing offers benefited especially from this legislation. In fact, there are several different ways in which the CARD Act made it easier and more advantageous for credit card users to accept introductory financing offers.
1. CARD Act Restrictions on payment allocation. The biggest problem with promotional financing offers before the CARD Act was how the card issuers were able to credit payments. The law used to allow them to credit the payments to the lowest interest rate balances first, and then the highest. For example, before the CARD Act someone could have transferred a $5,000 balance at 0% interest. Should that person then make a $100 charge the next day, he or she would incur interest on that $100 and not be able to make a payment against it until the entire $5,000 balance transfer was paid off. With the new CARD Act restrictions, banks must now apply payments to the portion of the balance with the highest interest rate first. So now, such a cardholder would be able to pay off the $100 balance first while maintaining the $5,000 balance interest free.
2. Minimum duration of promotional balances. Before the CARD Act, banks were able to offer 0% APR credit cards with no minimum duration. Since the CARD Act, credit card issuers must now offer at least six months of promotional financing. This makes it a lot easier for cardholders to realize enough savings to justify the balance transfer fee.
3. Indirect benefits. The CARD Act also contains many restrictions that are not specifically targeted at promotional finance offers, but can have a great effect on those who utilize them. For example, card issuers must send out statements 21 days before their due date, rather than the 14 days previously required. In addition, late fees are now capped at $25 or the amount of the outstanding payment. Finally, interest is now calculated on the basis of the cardholder’s average daily balance instead of the more complex and punitive double-cycle billing method previously used.
The CARD Act of 2009 has been a big help for every kind of credit card user, but those who utilize balance transfers are some of the biggest winners of them all.