The Credit CARD Act signed into law in May by President Obama went into effect Monday and there are some big changes in store for consumers and creditors.

The act limits when issuers of credit cards can increase interest rates and bans billing and payment practices the Federal Reserve calls “unfair or deceptive.”

It also makes credit card companies put on the statement how long it will take to pay off a balance if paying the minimum required amount.

For example, with a $3,000 balance and a 14 percent interest rate, it could take you 10 years to pay it off paying the minimum balance.

Some fear that this eye-opening statement could keep customers from spending as much, which would in turn drive down profits for credit card companies and retailers.

But Steve Goodman with R.W. Goodman in Rockingham, who worked in the finance industry for 30 years, said it’s always been important for consumers to pay off their cards as quickly as possible.

“The credit cards companies give you the minimum payment so it takes you longer to pay it off,” Goodman said. “We (at the store) can give you an option to pay in 12 or 14 or 18 months, but on months when you have some extra money, pay more on that account.”

Goodman explained that for credit cards, the rate of interest stays the same, but you’re paying interest on a bigger balance.

He recommends doubling up on payments early in the loan. For every $100 you can trim off the balance, that’s $100 that you won’t be charged interest on later.

“If you wait till the end to double up, you’re not saving any money. These are little tricks they should have taught people in school because they’re life skills.”

Goodman said in most cases, the difference between paying off debt quickly — be it credit cards or a mortgage — versus paying it off over a number of years is typically just a few extra dollars each payment.

On that $3,000 balance card, the minimum payment to pay off in 10 years would be $46.58, but if you want to pay it off in about 5 years, that’s just an extra $20 a month. And while that $20 might seem like a lot at the time, you’re saving yourself from building interest payments.

Goodman said at the store, they try and give their customers every option when it comes to paying off a purchase including in-house financing and an in-store credit card.

“We make sure people know their options and choose what’s best for them,” Goodman said.

A White House press release in May said every year, Americans pay around $15 billion in penalty fees and that nearly 80 percent of families have a credit card and that 44 percent of those families carry a balance on their credit cards.

One of the most significant provision of the law limits when credit card issuers can increase the interest rate on existing card balances. Consumers whose interest rates are increased may get rate deductions after six months if they pay their bills on time and don’t exceed their limit.

Under the new law, credit card issuers must notify consumers of significant changes in terms on their accounts at least 45 days before they take effect. They must also inform card users of their right to cancel or close the account, called opting out, if they do not agree to the changes.

Under the new law, consumers under 21 are also being protected, by putting limitations on marketing companies who pitch credit cards to young people on school and college campuses. Those under 21 who are not authorized users on their parents’ credit card accounts must show proof of income to repay card loans or have an adult co-signer if they want accounts in their own name.

Many banks, like the North Carolina State Employees Credit Union (NCSECU), already require co-signers for credit cards if a consumer is under age or has a lower credit score, making them a riskier credit card holder.

Doug Fulford, manager of the Rockingham NCSECU said these new regulations will affect every institution, but will be easier on the credit union since they are a non-profit entity.

“We never give different rates on cards because it’s all based on a formula we use from the Treasury,” Fulford explained.

On May 1, the NCSECU adopted the “Safe Credit Card Standards” issued by The Pew Charitable Trusts’ Safe Credit Cards Project.

The safe standards are designed to protect consumers from “unfair and deceptive” credit card practices and to help educate consumers on how to evaluate competing credit card offers for financial fairness.

The general guidelines of the Safe Credit Card Standards include: Cardholders will be charged only the interest rate they agreed to pay, fees will be imposed reasonably and will be transparent to the cardholder, cardholders will have sufficient time to review and pay their bills, payments will be applied first to balances carrying the highest interest rate.

Butch Farrah with Four Oaks Bank in Rockingham added that the community banks and state-regulated banks likely have fees, interest rates and penalties that are lower than the out of state credit card companies.

“I don’t know that the new rules will affect community banks and local institutions as much,” Farrah said.

Other key elements of this act include the ban on retroactive rate increases; first year protection meaning the contract terms must be clearly spelled out and stable for the entirety of the first year; ends late fee traps, enforces fair interest calculation, requires opt-in to over-limit fees; restrains unfair sub-prime fees; limits fees on gift and stored value cards; and plain sight/plain language disclosures.

To ensure the credit card companies are held accountable there will be public postings of credit card contracts so regulators and consumer advocates can monitor changes in credit card terms and evaluate whether current disclosures and protections are adequate; regulators will have to report annually to Congress on their enforcement of credit card protections; and regulators will be held accountable to keep those protections current by requesting public input on trends in the credit card market and potential consumer protection issues on a biennial basis. Regulators will also be required to update the applicable rules or to publish findings if they deem further regulation unnecessary.

Staff writer Eren Tataragasi can be reached at (910) 997-3111 ext. 19 or at etataragasi@yourdailyjournal.com.