The Credit CARD Act of 2009

The Credit CARD Act of 2009 was enacted to reform how credit cards work. Dubbed the Credit Card Bill of Rights, it bans universal default rates, curbs fees, limits penalties, and much more.

On May 22, 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. This new law was established to protect consumers, and especially young consumers, from skyrocketing credit card debt, unfair credit card practices, and deceptive credit offers.

Most aspects of the Credit CARD Act became effective on February 22, 2010, nine months after it was signed into law. However, two provisions became effective on August 20, 2009. These provisions contain the requirement that issuers provide 21 days for consumers to pay their credit card bills, and the requirement that issuers provide 45 days notice of changes in terms.

The third portion was effective Aug. 22, 2010. This section requires that penalty fees be reasonable and proportional to the violation and requires that issuers review all interest rates that were raised and reduce them where warranted. Certain gift cards will be required to have at least a 5-year life span and can't have declining values and hidden fees for gift cards not used within a reasonable period of time.

Here are some of the other key provisions of the Credit CARD Act:

  1. Prohibits arbitrary interest rate increases and universal default on existing balances.

  2. Prohibits card issuers from raising interest rates on existing balances unless the payment has not been received by the creditor within 60 days after the due date. If the cardholder pays the required minimum payment on time for six months following the delinquency, the company will have to restore the original rate.

  3. Requires payments in excess of the minimum to be applied first to the credit card balance with the highest rate of interest.

  4. Prohibits issuers from charging over-limit fees unless the cardholder elects to allow the issuer to complete over-limit transactions.

  5. People under the age of 21 will be required to have an adult co-signer or show proof that they have the means to repay the debt before credit will be extended to them.

Below is a summary of the different provisions of the Credit CARD Act from the United States Senate Committee on Banking, Housing, and Urban Affairs.

Summary of The CARD Act of 2009:
THE CREDIT CARD ACCOUNTABILITY RESPONSIBILITY AND DISCLOSURE ACT
May 19, 2009

Prevents Unfair Increases in Interest Rates and Changes in Terms:

  1. Prohibits arbitrary interest rate increases and universal default on existing balances
  2. Requires a credit card issuer who increases a cardholder's interest rate to periodically review and decrease the rate if indicated by the review
  3. Prohibits credit card issuers from increasing rates on a cardholder in the first year after a credit card account is opened
  4. Requires promotional rates to last at least 6 months

Prohibits Exorbitant and Unnecessary Fees:

  1. Prohibits issuers from charging a fee to pay a credit card debt, whether by mail, telephone, or electronic transfer, except for live services to make expedited payments
  2. Prohibits issuers from charging over-limit fees unless the cardholder elects to allow the issuer to complete over-limit transactions, and also limits over-limit fees on electing cardholders
  3. Requires penalty fees to be reasonable and proportional to the omission or violation
  4. Enhances protections against excessive fees on low-credit, high-fee credit cards

Requires Fairness in Application and Timing of Card Payments:

  1. Requires payments in excess of the minimum to be applied first to the credit card balance with the highest rate of interest
  2. Prohibits issuers from setting early morning deadlines for credit card payments
  3. Requires credit card statements to be mailed 21 days before the bill is due rather than the current 14

Protects the Rights of Financially Responsible Credit Card Users:

  1. Prohibits interest charges on debt paid on time (double-cycle billing ban)
  2. Prohibits late fees if the card issuer delayed crediting the payment
  3. Requires that payment at local branches be credited same-day
  4. Requires credit card companies to consider a consumer’s ability to pay when issuing credit cards or increasing credit limits

Provides Enhanced Disclosures of Card Terms and Conditions:

  1. Requires cardholders to be given 45 days notice of interest rate, fee and finance charge increases
  2. Requires issuers to provide disclosures to consumers upon card renewal when the card terms have changed
  3. Requires issuers to provide individual consumer account information and to disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made
  4. Requires full disclosure in billing statements of payment due dates and applicable late payment penalties

Strengthens Oversight of Credit Card Industry Practices:

  1. Requires each credit card issuer to post its credit card agreements on the Internet, and provide those agreements to the Federal Reserve Board to post on its website
  2. Requires the Federal Reserve Board to review the consumer credit card market, including the terms of credit card agreements and the practices of credit card issuers and the cost and availability of credit to consumers
  3. Requires Federal Trade Commission rule-making to prevent deceptive marketing of free credit reports

Ensures Adequate Safeguards for Young People:

  1. Requires issuers extending credit to young consumers under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual 21 years or older who will take responsibility for the debt; or proof that the applicant has an independent means of repaying any credit extended
  2. Limits pre-screened offers of credit to young consumers
  3. Prohibits increases in the credit limit on accounts where a parent, legal guardian, spouse or other individual is jointly liable unless the individual who is jointly liable approves the increase
  4. Increases protections for students against aggressive credit card marketing, and increases transparency of affinity arrangements between credit card companies and universities

Enhanced Penalties:

  1. Increases existing penalties for companies that violate the Truth in Lending Act for credit card customers

Gift Card Protections:

  1. Protects recipients of gift cards by requiring all gift cards to have at least a five-year life span, and eliminates the practice of declining values and hidden fees for those cards not used within a reasonable period of time

Encourages Transparency in Credit Card Pricing:

  1. Requires the GAO to study the impact of interchange fees on consumers and merchants, specifically their disclosure, pricing, fee and cost structure.

Protects Small Businesses:

  1. Requires the Federal Reserve to study the use of credit cards by small businesses and make recommendations for administrative and legislative proposals
  2. Establishes Small Business Information Security Task Force to address the information technology security needs of small businesses and help prevent the loss of credit card data

Promotes Financial Literacy:

  1. Requires comprehensive summary of existing financial literacy programs and development of strategic plan to improve financial literacy education

Click on the following link to read the full text of the bill, Credit Card Accountability, Responsibility, and Disclosure Act.

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