No more unfair rate increases
The Credit Card Accountability Responsibility and Disclosure Act of 2009 is an amendment to the Truth in Lending Act. The Obama Administration presented the Credit CARD Act in May, 2009 to protect customers from hidden fees and unexpected interest rate hikes. The law was implemented in two phases. The first phase took place in August, 2009 and the second phase took place in February 2010. The Credit CARD Act now requires credit card companies to give 45-days advance notice before increasing rates. The act also gives cardholders 21-days notice before their bill is due.
The Credit CARD Act of 2009 is designed to make communications from credit card issuers clearer to consumers, and not necessarily lower interest rates or prevent issuers from lowering credit limits arbitrarily.
The primary strengths of the Credit CARD Act of 2009 can be found in five main categories: rate increases, fee traps, disclosures, accountability, and marketing to young consumers. The highlights, based on a synopsis of the bill found at the Whitehouse.gov Web site, follow:
No more unfair rate increases
Credit card issuers will no longer be able to raise rates retroactively, and promotional rates must last at least six months.
- No Retroactive Rate Increases: Credit card issuers may not increase rates on existing balances due to "any time, any reason" or "universal default" and are restricted from retroactive rate increases due to late payment.
- First Year Protection: Contract terms must be clear and stable for the entirety of the first year. Credit card issuers may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least six months.
No more unfair fees
- "Fee Traps" Banned: Credit card issuers will have to give card holders a reasonable time to pay the monthly bill. Consumers must have at least 21 calendar days from time of mailing to the due date. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
- Fair Interest Calculation: Credit card issuers will be required to apply excess payments to the highest interest balance first. The act also ends the practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called "double-cycle" billing.
- Requires Opt-In to Over-Limit Fees: Consumers will find it easier to avoid over-limit fees because issuer must obtain a consumer's permission to process transactions that would place the account over the limit.
- Restrains Unfair Sub-Prime Fees: Fees on subprime, low-limit credit cards will be restricted.
- Limits Fees on Gift and Stored Value Cards: The act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.
Plain Sight /Plain Language Disclosures
Credit card contract terms will be disclosed in language that consumers can see and understand so they can avoid unnecessary costs and manage their finances.
- Plain Language in Plain Sight: Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers' accounts afterwards. For example, pre-opening disclosures will highlight fees consumers may be charged and periodic statements will conspicuously display fees they have paid in the current month and the year to date as well as the reasons for those fees. These disclosures will help consumers make informed choices about using the right financial products and managing their own financial needs. Model disclosures will be updated regularly based on reviews of the market, empirical research, and testing with consumers to ensure that disclosures remain clear, useful, and relevant.
- Real Information about the Financial Consequences of Decisions: Issuers will be required to show the consequences to consumers of their credit decisions.
- Pay-off Time Total: Issuers will need to display on periodic statements how long it would take to pay off the existing balance -- and the total interest cost -- if the consumer paid only the minimum due.
- 36-Month Pay-Off: Issuers will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months.
The act will help ensure accountability from both credit card issuers and regulators who are responsible for preventing unfair practices and enforcing protections.
- Public posting of credit card contracts: Today credit card contracts are usually available only in hard copy and not in plain language. Issuers must make contracts available on the Internet in a usable format. Regulators and consumer advocates will be better able to monitor changes in credit card terms and evaluate whether current disclosures and protections are adequate.
- Holds regulators accountable to enforce the law: Regulators will be required to report annually to the Congress on their enforcement of credit card protections
- Holds regulators accountable to keep protections current:
- Consumer Input: Regulators will be required to request public input on trends in the credit card market and potential consumer protection issues on a biennial basis to determine what new regulations or disclosures might be needed.
- Regulator Rule Changes: Regulators will be required either to update the applicable rules, or to publish findings if they deem further regulation unnecessary.
- Increases penalties: Card issuers that violate these new restrictions will face significantly higher penalties than under current law, which should make violations less likely in the first place.
Restricts Marketing and Issuing Cards to Young People
The act contains new protections for college students and young adults, including a requirement that card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students.