New credit-card rules: How do they affect you?

Provisions in a new consumer-protection law take effect Thursday. Phase 2 kicks in next February.

Starting Thursday, credit-card users are getting more time to avoid late fees and maybe rate hikes.

A new consumer-protection law won’t lift all debt burdens, by any means, but supporters call it a victory against some of the most abusive practices of the bank-card industry.

Here’s a rundown on what the Credit Card Accountability, Responsibility, and Disclosure Act means to you, both right now and in February when Phase 2 takes effect.

First, the immediate impact:

• You’ll get at least 45 days' notice of any significant changes in card terms, with the option to decline a rate increase (you would pay off the balance over time at the original rate, while using those 45 days to switch to another card company for your future charges).

• You’ll have at least 21 days' notice to pay your bill, before a late fee will kick in. Until now, some companies raked in extra fees by narrowing the time between billing and the payment due date. Now, three weeks is the minimum.

• For now, it means rising interest rates, as card issuers take advantage of the window before new limits go into effect in February (see below).

• It’s not part of the new law, but now is the time to pay down debt if you can, says Greg McBride of Bankrate.com, which follows consumer credit conditions. Certain consumer-unfriendly practices may be ending, but credit-card debt will remain the highest-cost debt most families have, he says. And it’s likely to get even more expensive, since interest rates tend to rise when the economy recovers from a recession.

“Eliminating the ‘gotcha’ practices is an unequivocal win for consumers and something that is long overdue,” McBride says. “But some of the other provisions will have the effect of limiting access to credit or increasing the cost of credit for all consumers, even the responsible ones.”

About one-third of US families have credit cards with a balance that's not paid off each month, says the American Bankers Association. Although interest rates are up in the past year, they remain low compared with prior years, the association says.

Still, a “low” rate for card debt is still above 14 percent. In the recession, many households have been turning to plastic cards as a last-ditch way to cover key bills, according to a study by the research and advocacy group Demos.

The industry warns that the tighter regulations – which bankers call the most significant reforms since the dawn of the card – will force issuers to come up with new business models. Translation: Credit will cost more and be harder to get.

Here are some of the changes due in February:

• “Any time, any reason” rate increases on existing balances will be banned. Rates can still go up for people who fall 60 days behind on payments. And rates can still vary by being explicitly linked to a benchmark such as the prime rate.

• Issuers must apply payments to the highest-interest balances first, instead of the lowest-interest ones as is typical today.

• Disclosure will be enhanced. You’ll see how long it will take to pay your balance if you make only the minimum payments, and what your fees will be if you pay the balance in 36 months.

• “Two-cycle billing” for calculating interest charges will end. This practice penalized people who occasionally maintain a balance.

• Cards won’t be issued to people under 21 without verifying their ability to pay or obtaining parents’ permission.