The rules of the credit card game in the U.S. is about to change, but just because the consumers know what are the changes does not mean they are going to like what they will learn.

When the first phase of the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act goes into effect anytime this August 2009, credit card users will be armed with a new right to say no to - that is, opt out of - interest-rate increases and other changes in their credit card agreements. The aim of all the new rules is to make credit card contracts easier for consumers to understand. Previously, the disclosures on most credit card contracts were not considered by many as comprehensible to the average consumer.

Under the first phase of the new law, consumers must be given:

• At least 45 days' warning of changes to their credit card accounts. Currently, only 15 days' notice is required unless customers default on their accounts, in which case interest-rate increases can go into effect immediately.


• At least 21 days to pay their monthly credit card statements without threat of late fees.


• The right to opt out of interest-rate and fee increases and the right to cancel their accounts while paying off the balances under the old, lower interest rates. Currently, issuers offer opt-out options at their discretion, and it is not a consumer right.

Other aspects of the new credit card law - such as restrictions on interest-rate increases, bans on issuing and marketing credit cards to young adults, and regulations on gift cards - take effect in February 2010 and later. In addition, starting 1 July 2010, a host of requirements for disclosing fees, rates and terms on monthly statements, credit card applications and mailers will become law as a result of new rules drafted and approved by the Federal Reserve Board and other banking regulators.

Taken as a whole, the Credit CARD Act and upcoming federal rules mark a dramatic shift in how credit cards will be marketed, issued and billed. Card issuers will have to "dismantle their existing models and then rebuild them - just as a carmaker might have to completely redesign its models," Nessa Feddis, a vice president and senior counsel for the American Bankers Association, said last week during a media briefing.

She acknowledged that credit card issuers have cut credit limits, closed accounts and increased interest rates in anticipation of the changes.

The reason for these and other card maneuvers seen in recent months: Making such changes won't be so easy with the new restrictions. As a result, card issuers "have to basically front-load that risk, and risk equals cost," Feddis said

Other provisions that will go into effect include:

• Credit card issuers must inform card users of the right to cancel when they mail a 45-day notice of a change in terms. The notice must explain the steps cardholders can take to exercise their right to cancel, including a toll-free number to call and a deadline for opting out.


• Opting out means a consumer can no longer make purchases with the card. Instead, the old, lower interest rate or fee will be applied while the consumer repays the balance.


• There are exceptions to the opt-out rule. Consumers cannot opt out of increases in minimum-payment amounts.


• Another major exception is variable-rate credit cards, whose rates are tied to an index - almost always the prime rate. When the Federal Reserve raises interest rates, it raises the prime rate. Those increases are passed on to variable-rate cardholders; no opt-out is allowed. In recent months, card issuers have reacted by switching consumers from fixed-rate cards to variable-rate cards.


• Consumers who are more than 60 days late making payments do not have the right to reject rate increases.


• Reductions in credit limits cannot be rejected by any cardholders.


• Issuers cannot demand payment in full of outstanding balances or charge monthly maintenance fees on closed accounts if consumers reject changes in terms.

Other potential impacts of the new law: "Credit cards will be less available to consumers and to small businesses. Their limits will be lower, and they will pay more," Feddis said. "This 45-day advance notice means you can't change the rate on somebody even though they've become more risky," she added, noting the exceptions included in the law, namely, when the account has a variable rate, if a promotional or teaser rate is used or when the cardholder completes a workout debt-repayment plan.