The Credit CARD Act of 2009

Starting back in February 2010, consumers were offered additional protections under the Credit CARD Act of 2009. Signed by President Barack Obama, the act offers credit card holders a series of industry reforms that help to lower interest rates, penalties, as well as fees.

In this article, we're going to review the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009.  We're going to summarize most of those provisions by reviewing each of the five titles outlined in the act, which include:

  1. Consumer Protections
  2. Credit Card Disclosures
  3. Protection of Young Consumers
  4. Gift Cards
  5. Other Miscellaneous Provisions

Credit CARD Act

The Credit CARD Act amends the Truth in Lending Act, and the intention of this law was to protect credit card holders.  The above five titles can be separated into two distinct sections:

  • Disclosures:  the credit card industry will now have to adhere to stricter disclosure requirements, making it easier for consumers to understand the terms and conditions of their account.
  • Practices:  credit card issuers will have limited flexibility in their practices.  The law now places limits on fees, interest rates, as well as increases to rates charged on existing balances.

Consumer Protections

  • Interest Rates:  companies are required to provide 45-days notice prior to increasing rates.
  • Fees on Interest:  companies are no longer allowed to charge fees on an interest-only account balance.
  • Right to Cancel:  if a company increases interest rates, then consumers have three billing cycles to pay off their existing balances at existing rates and payment schedules.
  • Retroactive Rates:  companies can no longer retroactively increase interest rates on existing balances for cardholders in good standing.
  • Interest on Debt:  companies are prohibited from charging interest on debt that is paid during the "grace" period.  This is sometimes referred to as double-cycle billing.
  • Six Month Review:  if a cardholder that has been subjected to a rate increase pays on time for six consecutive months, the creditor must return the interest rate to its previous value.  Creditors are now required to review payment history and determine if this six month rule applies.
  • Card Payments:  payments in excess of the minimum payment amount must be applied to debt carrying the highest interest rate first.
  • Subprime Fees:  if the terms of a credit card agreement require the payment of fees during the first year that total more than 25% of the credit authorized, then no payment of any fees can be made from the credit available in the account.  This rule excludes fees associated with late payments, insufficient funds, or over-the-limit charges.
  • Billing:  companies are now required to send bills a minimum of 21 calendar days in advance of their due date.  The previous minimum was 14 days.
  • Receipt of Payments:  if payment is made before 5:00 p.m. EST, this payment must be posted to the account on that same day.
  • Due Dates:  must now fall on the same day each month.  If the date falls on a weekend (Saturday or Sunday) or a legal holiday, the due date will be pushed forward to the next business day.
  • Late Fees:  credit card companies can no longer charge a late fee if the cardholder is able to provide proof payment was mailed at least seven days prior to the bill's due date.
  • Contact Information:  billing statements must include a telephone number as well as an internet address for a cardholder to access when attempting to make payments.
  • Misleading Terms:  terms such as "fixed rate" appearing in conjunction with the annual percentage rate or interest rate, can only be used to refer to an annual percentage rate that will not vary over the specified period.
  • Right to Reject:  cardholders that are pre-approved have the right to reject a new credit card until activated without fear their credit standing will be affected.
  • Ability to Repay:  card issuers cannot open an account for a consumer, or increase a credit limit, unless the issuer considers the consumer's ability to make the required payments under the existing terms and conditions of the account.

Credit Card Disclosures

  • Payoff Timing:  requires card issuers to print on statements the length of time and interest charges incurred if the debtor only makes minimum payments.  Also requires card issuers to print on statements the payments needed to pay down all debt in three years, and the interest charges incurred if the debtor were to make these payments.
  • Late Payment Penalties:  requires disclosure of late payment deadlines, increases to interest rates for late payments, as well as disclosure of local branch offices that will accept payments.
  • Internet Agreements:  requires credit card issuers to submit their written agreements to the Federal Reserve Board each quarter as well as making agreements accessible via public websites.  Cardholders are also entitled to a copy of the agreement via the website or by calling a toll-free number.  Agreements must be delivered to consumers within 30 days.
  • Marketing of Credit Reports:  all advertisements for free credit reports must prominently disclose in the advertisement that free credit reports are available at AnnualCreditReport.com.

Protection of Young Consumers

  • Issuance:  a credit card, or a credit plan, cannot be issued to anyone younger than age 21 unless they have supplied financial information sufficient to prove they have the means to repay, or a cosigner has agreed to joint liability for all debts.
  • Inducements:  card issuers are prohibited from offering a student at an institution of higher education any tangible item to persuade the student to apply for a credit card or plan.
  • Disclosures:  institutions of higher education such as colleges and universities must publically disclose any contract or agreement made with a card issuing company for the marketing of cards to students.

Gift Cards

  • Dormancy Fees:  inactivity charges and service fees cannot be levied unless the card has not been used for a 12-month period.  If a fee is imposed, then no additional fees can be charged in that month.  Details of all such fees must be disclosed, including the frequency as well as the amount charged.
  • Expiration Date:  the date a gift card expires must be at least 5 years after it was issued.

Other Miscellaneous Provisions

  • Interchange Fees:  the Comptroller General of the United States will conduct a study on the use of credit by consumers, interchange fees, and their effects on both consumers as well as merchants.
  • Terms of Card Agreements:  every two years the Board of Governors of the Federal Reserve System will conduct a review of the terms of credit card agreements, practices of card issuers, effectiveness of disclosure terms, expenses associated with plans, and adequacy of consumer protections.
  • Marketing of Products and Credit Offers:  the Comptroller General of the United States will conduct a study on the terms, conditions, marketing, and the value of any product marketed in conjunction with credit cards including offers such as debt suspension, debt cancellation and credit insurance.

About the Author - The Credit CARD Act of 2009 (Last Reviewed on September 20, 2016)