In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) to address a growing number of predatory and unfair practices in the credit card industry.
The Act amended the existing Truth in Lending Act to provide more disclosures to customers, limit fees, and provide more constraints on issuing credit cards to minor children.
What Is the CARD Act of 2009?
The CARD Act of 2009 was passed by the Senate on May 19, 2009, signed into law by President Barack Obama on May 22, 2009, and went into effect in phases throughout 2010. The CARD Act sought to improve transparency, regulate fees, and protect consumers from deceptive practices.
The Act consists of five titles, which are the following:
- Title I – Consumer Protection
- Title II – Enhanced Consumer Disclosures
- Title III – Protection of Young Consumers
- Title IV – Gift Cards
- Title V – Miscellaneous Provisions
We outline some of the key changes under the Act and how they impact your use of credit cards and your rights before card issuers.
Notice Period for Raising Interest Rates
Before the Act, credit card companies could raise the interest rate at any time, often with little or no warning to the consumer. Under the CARD Act, issuers must provide at least 45 days’ notice before increasing interest rates on existing balances. In addition, credit card issuers cannot raise rates on new purchases within the first 12 months of opening an account.
This provision helps guard consumers from surprise changes, giving you plenty of time to change your accounts. For example, assume you sign up for a credit card with an Annual Percentage Rate (APR) of 15%, which you find reasonable for a credit card. After having the card for only two weeks, the credit card company increases the APR to 29%.
It seems a bit unfair, considering you only just opened the account under the pretense that it would stay at 15% for at least a reasonable amount of time. Locking in the rates for at least one year gives you sufficient time to change accounts if your credit card company gives you a notice of intent to raise the rates and you are dissatisfied with the change.
Elimination of Universal Default
The term “universal default” refers to a clause in a credit card agreement where a credit card issuer can immediately raise your interest rate if they determine a change in your risk profile. This interest rate increase can happen even if you are current with all payments. The universal default generally occurs if you miss or fail to make payments on a different account.
For example, assume you have two credit cards, Card A and Card B. With Card A, you are current on all payments and in good standing with the credit card issuer. With Card B, you have missed some payments and it’s negatively impacting your credit. Under the universal default rule, Card A can increase your interest rate because of your issues with a different credit card company.
The CARD Act banned this practice for credit card companies. They can no longer increase your interest rate because of delinquencies from completely unrelated accounts, such as another credit card or utility bill.
Easier to Read Billing Statements
The CARD Act mandates that credit card companies provide clear and easy to understand billing statements, including information on how long it will take to pay off your balance if you make only the minimum payment. Statements must also include information on the total cost of repaying your balance over time, including interest.
This improved transparency gives consumers a better picture of their outstanding debt obligations and how long it will take them to pay off their credit card debts.
Limits on Late Fees and Penalty Fees
Prior to the Act, credit card companies often imposed exorbitant late fees, sometimes as high as $39 for a single missed payment. The CARD Act caps late payment fees at a reasonable amount—no more than $25 for a first-time offense and up to $35 for additional late payments.
The act also prohibits issuers from charging over-limit fees unless the cardholder specifically opts in to allow transactions that exceed their credit limit.
These limits on fees help reduce the financial burden on consumers who may miss a payment or exceed their credit limit, offering them greater flexibility without being penalized excessively.
Minimum Payment Warnings
Another important protection introduced by the CARD Act is the requirement that credit card issuers include a minimum payment warning on each statement.
This warning shows how long it will take to pay off the full balance and the total interest that will be paid if only the minimum payment is made each month. The statement must also show how much you would need to pay each month to pay off the balance within 36 months.
This feature helps consumers understand the long-term impact of making minimum payments and can encourage them to pay off their balances faster, ultimately saving on interest.
Protection for Young Consumers Under 21 Years Old
The CARD Act introduced specific protections for consumers under 21, making it harder for young adults to obtain credit cards without a co-signer or proof of income. This aims to prevent students and young adults from accessing credit too early in their life, and eventually falling into debt before they have the financial knowledge or resources to manage it responsibly.
These rules help protect young consumers from predatory lending practices and ensure they understand the responsibilities that come with using a credit card.
The CARD Act Works in Your Best Interests
The CARD Act has provided much-needed safeguards for credit card users. The law has helped countless consumers better understand and manage their credit card debt by restricting sudden interest rate hikes, capping fees, and improving billing practices.
While the CARD Act doesn’t solve every challenge with credit cards, it gave consumers essential tools and protections to make more informed financial decisions. Knowing your rights under the CARD Act can help you navigate the world of credit cards more confidently, allowing you to avoid common pitfalls and maintain control over your financial health.