The Details about the Credit CARD Act
On May 22, 2009, President Obama signed The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act) into law with an explicit goal of consumer protection. The reforms, while designed to ban unfair rate increases, fee traps and to make terms clearer to consumers, aren’t a free pass to charge everything. A White House statement says “we expect consumers to live within their means and pay what they owe.”
Here, we take a closer look at how these reforms affect your financial picture:
More notice of rate hikes and bill due dates
Under the legislation, consumers get 45 days’ notice before rate hikes and other key contract changes go into place.
However, the requirement doesn’t apply to credit limit changes, which means that credit card companies can still lower credit limits without sending consumers any warning--unless that reduction would trigger a penalty.
You also have more time to pay your bills! Credit card companies are required to send statements 21 days before payments are due, rather than 14.
The Credit CARD Act restricts or bans various credit card fees, including:
• Overlimit fees.
Consumers now have to approve transactions that would put their accounts over the limit. Credit card issuers are limited to charging one overlimit fee per billing cycle.
• No fee to pay credit card debt.
Banks can no longer charge consumers a fee to pay their credit card debt but can still impose fees to expedite payments. Payments received by due dates (or the next business day if the bank doesn’t accept mailed payments on the due date) won’t trigger a late fee.
No more double-cycle billing
The Credit Card Accountability, Responsibility, and Disclosure Act ends "double-cycle" billing, where issuers calculate finance charges based on current and previous balances.
No retroactive rate increases
Unless you are more than 60 days late on your account, card issuers cannot raise the rate on your existing balance, only on new purchases. (After you make six months of on-time payments, issuers are then required to revert to the lower rate.) The ban includes increases on existing balances due to "any time, any reason" or "universal default" and severely restricts retroactive rate increases due to late payment.
Too young to vote? Too young to charge
Consumers below age 18 are no longer be able to receive credit, unless designated as a secondary cardholder to a parent or guardian’s account. College-age applicants’ account limits will be limited to 20% of their annual income or $500, whichever is greater. New protections also require that card issuers and universities disclose agreements about the marketing and/or distribution of credit cards to students.
Pay off high-rate balances first
Many consumers’ accounts have different rates for different transactions with some, for example, in a low-rate balance transfer and the rest in regular-rate purchases. The Credit CARD Act requires above-the-minimum payments be applied first to the highest-rate portion of the balance.
So while the Credit CARD Act does offer consumers some relief from rate hikes and fees, it’s still a smart move to pay bills on time, pay off balances whenever possible, and monitor your credit so you know what’s going on.
After understanding more about the Credit Card Accountability, Responsibility, and Disclosure Act, get your credit report & score.