The Credit Card Accountability, Responsibility, & Disclosure Act of 2009 (CARD for short) is a comprehensive credit card reform act that was signed into law in 2009 and goes into effect on 2/22/2010. Read on to learn the specifics of the credit card protection act and see how the new credit card rules effect you and then be sure to check out our free credit card research tools to find and compare the best credit cards!
The Goal of the CARD Act
The main purpose of the 2009 credit card act can be gleaned from the official CARD press release on WhiteHouse.gov that essentially says that in times past credit card companies have structured cardholder agreements and credit card contracts in a way that is at best complicated and too hard for the average consumer to understand and at worst marketed to consumers in an unfair and deceptive manner. The goal of the CARD Act is to promote transparency in credit card marketing and prohibit certain credit card company practices unfavorable to consumers.
Pros and Cons of the CARD Act
Proponents of the CARD Act believe that the new credit card regulations will help consumers by making credit card contracts easier to understand, credit card marketing practices more heavily regulated, and prohibiting certain credit card fees. Opponents of the CARD Act believe that the new credit card laws will end up harming consumers more than helping them because credit card companies will face new regulations that will make it tougher for many consumers to get credit, make it harder for consumers with good credit histories to get a credit card with favorable interest rates and credit card benefits, and force credit card issuers to levy new fees on consumers to make up for the companies inability to accurately price credit card default risk.
What Does the Credit Card Act Do Exactly?
Here are the main categories of the CARD Act of 2009:
- New guidelines for what credit card companies can and can’t do for publishing and assessing fees, terms, and rates
- New guidelines for providing credit cards to students and for marketing credits to students
- New guidelines for how credit card companies should disclose their credit card terms
- New guidelines for commissioning credit card studies to assess what future changes might need to be made in the credit card industry
- An assorted grab bag of random regulations that deal with credit insurance policies, estate settlement, mortgage lending practices, and even guns in national parks
Let’s take a detailed look at each of these main parts of the CARD Act and see what kinds of effects that they will have on your ability to find the best credit card.
CARD Act: Allocating Payments
In a Nutshell: “Credit card companies must assign cardholder payments towards the portion of their balance that has the highest interest rates first and then down to the lowest interest rates.”
Before the passage of the CARD Act if a cardholder made a credit card payment that was greater than the required minimum payment then the credit card company had the ability to apply that extra payment amount towards whatever portion of the cardholder’s credit card balance that they liked. This meant that credit card companies would almost always allocate this extra payment amount towards the portion of the credit card balance that had the lowest interest rates (since it would be more beneficial for the credit card company to keep the cardholder’s portion of the balance that had the highest interest rate because it would make the company more money). The new credit card act changed this common practice by requiring credit card companies to now allocate credit card payments starting at the portion of the balance that has the highest interest rate first and then progressing from highest to lowest interest rate.
CARD Act: Double-Cycle Billing
In a Nutshell: “Credit card companies are no longer able to use the double-cycle billing method of calculating interest charges whereby the credit card company takes into account not only the most recent month’s average daily balance but also the average daily balance of the two most recent months.”
Prior to the CARD Act it was a common practice for credit card issuers to calculate the amount of interest that was to be charged to a credit card customer by using the double cycle billing method of credit card interest calculation. Many critics have labeled the double-cycle billing method unfair to consumers because the calculation takes into consideration not just the most recent month’s credit card balance but also the prior month’s credit card balance. This means that even if a credit card customer had paid off their credit card balance in full but happened to have a large credit card balance on their card two months ago then this could negatively affect their current interest charges. The credit card responsibility act makes it illegal for credit card companies to use the double-cycle method of billing excepting in the case of a disputed purchase or a return of a payment for NSF (Non Sufficient Funds) or some other similar scenario.
CARD Act: Payment Due Dates & Late Fees
In a Nutshell: “Credit card companies must make payment due dates the same day of each month and if the date is changed because of a bank holiday, weekend, etc. then the company must credit the payment on the next business day. In addition, if a credit card company changes their mailing address or makes some other type of substantive change to their credit card payment procedures then they are prohibited from charging any late fees for the 60 days following the completion of those changes.”
It is fairly common for consumers to get mixed up with payment dates and while it is still of course the consumer’s responsibility to manage credit cards responsibly and stay on top of when their payment is due the CARD Act makes the process a little easier for consumers by requiring card issuers to keep the payment due date the same date every month and if the payment date must be changed because of a bank holiday or weekend then the credit card company must apply the payment on the next business day. Credit card companies must also waive all late fees for 60 following any type of change to their mailing address or other portion of their posted procedures for making credit card payments.
CARD Act: Gift Card Inactivity Fees
In a Nutshell: “Gift card issuers must not cause their gift cards to expire within 5 years of activation (unless clearly disclosed) and they must not levy inactivity fees on gift cards unless the gift card has been inactive for at least 12 months and even then the fees should be limited to one per month.”
Before the passage of the CARD Act one of the biggest drawbacks to many gift cards was the fact that you had to either “use it or lose it” pretty quickly or else the gift card would either be deactivated and not worth anything or the gift card balance would slowly be eaten away by inactivity fees (also called gift card dormancy fees or gift card service fees). The credit card reform act could in fact be labeled the gift card reform act because now consumers can rest easy and not be forced to spend their gift card balances right away as gift card inactivity fees are prohibited unless the gift card has not been used for 12 months or more. Even then the gift card fees are limited to one per month. Gift cardholders can also relax in the realization that their gift card cannot be deactivated within the first 5 years of being activated unless the gift card expiration date is clearly marked.
CARD Act: Interest Rate Increases on Existing Credit Card Balances
In a Nutshell: “Credit card companies are expressly prohibited from increasing the interest rates on a cardholder’s current credit card balance except for very specific scenarios like when an introductory APR promotional period is ending, the rate is a variable rate that is tied to an index like the Prime Rate, etc. Card issuers are also prohibited from using credit card default information from other lines of credit extended to the customer from different companies to in turn raise interest rates for the customer (the credit card practice called ‘Universal Default’)”
Before the passage of the CARD Act credit card companies had the latitude to retroactively raise credit card interest rates on existing credit card balances almost at will. Now credit card companies are not allowed to retroactively raise interest rates except for the following scenarios:
- An introductory “promotional” or “teaser” APR period is over (new rules also force credit card companies to make all introductory low rate interest offers last for at least 6 months).
- The interest rate is a variable interest rate that changes based on changes in the underlying index rate (most variable credit card interest rates are indexed to the Prime Rate).
- The cardholder finishes the terms of a credit card workout program to repay credit card debt or does not comply with the credit card debt repayment program guidelines.
- The cardholder makes a payment that is more than 60 days late (but if the cardholder then makes on time payments for the next 6 months then the credit card company must revert the interest rate back to the original lower level).
- When the cardholder is a member of the United States military that has just ended active duty. There is an existing cap on credit card interest rates for active duty US military members of 6% but when members of the US military come off of active duty then the Federal Reserve has instituted a new law that allows credit card issuers to return the non active duty United States military member cardholder to regular APR levels.
There are also additional rules and regulations for credit card companies that compel them to keep interest rates at the same level as when the card was first issued (with the exception of certain situations like the above bullet point scenarios) for at least the first year. Additionally, card issuers must conduct systematic reviews of every cardholders creditworthiness, current interest rate conditions, current market conditions, etc. every 6 months to determine if they are able to lower their interest rate. Also, the practice of using information from other accounts open in a customers name with different companies (different credit card accounts, utility accounts, etc.) to increase interest rates even if the customer is current on their credit card payments with the credit card company but is in default with some other type of credit account, called the “Universal Default Provision”, is now prohibited.
CARD Act: Over-Limit Fees
In a Nutshell: “When a cardholder charges their credit card and goes over their credit limit then over-limit fees are only able to be imposed by credit card companies if the cardholder has previously opted in to accepting the over-limit fees on their credit card account. If the cardholder has not opted in to accepting the over-limit fees then if they attempt to make a purchase that would place them over their credit limit then the transaction will be denied by the card issuer. Also, even for customers that opt in to accepting over limit credit card fees the card issuer will be limited to levying over-limit fees only once per billing cycle.”
Before the credit card reform act was passed into law credit card companies could charge over-limit fees as often as they wanted to every time a cardholder charged their credit card and went over their pre-established credit card limit. Of course, the onus of responsibility is quite naturally on the cardholder to not charge their credit card and go over their credit limit and if they do so to deal with the consequences of their actions but the CARD Act seeks to limit the fees that can be charged to these types of irresponsible credit card users. By default the new credit card over limit fee rules require that credit card companies simply deny any transaction that will place a cardholder over their limit unless that cardholder has first opted in to accept any applicable over-limit fees in the event that they exceed their credit limit. Additionally, if a cardholder has already opted in and gets hit with an over limit fee then any subsequent attempted purchases during that same billing cycle that would result in the cardholder exceeding their credit card limit will result in a credit card decline by the credit card company because the new credit card regulations prohibit the assessment of more than one over-limit fee per customer per billing cycle.
CARD Act: Fees for Alternate Payment Methods
In a Nutshell: “Credit card companies are not allowed to charge customers fees for choosing to pay their credit card a certain way (i.e. mailing in a check vs. paying online).”
Prior to the Credit Card Accountability and Responsibility Act of 2009 it was common to see processing/handling fees charged by credit card companies for credit card payments that were made by mailing in a check, over the telephone with an automated system or a customer service representative, via electronic transfer of funds, etc. as opposed to the card issuers preferred method of payment which is usually an online draft from a bank account. The credit card reform act bans all fees for alternate credit card payment methods but it does allow fees to be charged for rush payments/express payments.
CARD Act: Sub-Prime (Bad Credit) Credit Cards
In a Nutshell: “Card issuers offering bad credit credit cards are prohibited from charging fees that exceed 25% of the available credit limit on the card during the first year (not including fees for late payments, over-limit fees, and NSF (Non Sufficient Funds) fees).”
Before the CARD Act came into effect it was a fairly common practice for bad credit credit card companies to have very heavy fees on the credit cards that they marketed and issued to those who have a bad credit history. Since people with a spotty credit record are much more likely to default on their credit card debt and leave the credit card company with a loss then companies would seek to protect themselves from these losses by imposing high upfront fees for people applying for these types of credit card offers. The new credit card rules for those with bad credit force credit card companies to cap these fees on sub prime credit cards at 25% of the available credit limit on the card (just for the first year). The 25% cap does not include fees for going over the credit limit, making a late credit card payment, or trying to make a payment but not having enough funds to make the credit card payment.
CARD Act: Credit Card Statements
In a Nutshell: “Credit card companies must deliver credit card statements to cardholders at least 21 days before any payment is due. Also, if there is a grace period associated with the credit card then no interest charges are to be levied until the cardholder has received the credit card statement at least 21 days before interest charges are set to begin.”
The new credit card rules in the CARD Act places some specific guidelines for credit card companies to follow when delivering credit card statements to cardholders. The minimum amount of time that a cardholder must receive their credit card statement is 21 days before any payment is due on the card. If there is a grace period on the card then finance charges are prohibited from being assessed onto the credit card unless the card issuer has delivered the credit card statement to the cardholder at least 21 days before the credit card finance charges begin kicking in.
CARD Act: Credit Cards for Those Under the Age of 21
In a Nutshell: “Those who are under the age of 21 are prohibited from getting a credit card unless they can show proof of income or ability to pay or they are willing to accept a co-signer additional cardholder onto their credit card with them (such as a parent).”
Before the credit card act it was relatively easy to get a credit card if one was at least 18 years of age or older. In fact, even if one was 18 years old and had little or no income but a decent credit score it was still fairly easy to get approved for a credit card without even a second look at the applicant’s income or potential for paying back any charges on the card. The CARD Act now forces credit card companies to scrutinize the income and the ability to make credit card payments of every applicant that is under the age of 21. If an under 21 credit card applicant applies for a card and can substantiate adequate income / ability to pay then they may possibly be approved for a credit card but if they cannot then they cannot be approved for a credit card even if they have a great credit score and future earning potential unless they are able to get someone (like a parent, relative, guardian, etc.) to become a co-signer on the credit card application. Additionally, credit card companies are not allowed to raise the credit limits on credit cards with an under 21 cardholder unless the over 21 individual that co-signed on the card agrees to the credit limit increase.
CARD Act: College Credit Card Marketing
In a Nutshell: “Credit card companies are prohibited from offering incentives to students to sign up for a credit card (free pizza, t-shirts, bookbags, etc.) and are not allowed to market student credit cards within 1,000 feet of a college campus or college sponsored event. Additionally, colleges and universities must fully disclose any relationships that they may have with a credit card company.”
Before the CARD Act stepped in it was a common scene to see booths set up on college campuses pitching student credit cards along with free pizza, free t-shirts, and other goodies. Now the CARD Act student credit card rules make it illegal for companies to offer freebies to college students to entice them to submit a student credit card application and student credit card marketers must refrain from pushing credit cards within 1,000 feet of a college campus or college sponsored event. Also, any relationship that exists between a university or college and a credit card issuer must be fully disclosed in public.
CARD Act: Notice of Changes to Cardholder Agreements
In a Nutshell: “Credit card companies must give credit card customers at least 45 days notice before making any changes to cardholder agreements take effect.”
The CARD Act forces companies to give credit cardholders a minimum of 45 days advance notice before putting into effect any major changes to their cardholder agreement (i.e. fees, rate increases, etc.). In each of these written 45 day advance notices the credit card company must also inform the consumer that they have the right to cancel their credit card account if they wish and that canceling /closing the credit card account will not require the customer to immediately pay off the full credit card balance.
CARD Act: Free Credit Report Marketing
In a Nutshell: “Companies that offer free credit reports must state that customers are entitled to get at least one free credit report from the Federal Government every year and that the free credit report that they are offering is not from the government and that the official website for getting the free Federal Government provided credit report is AnnualCreditReport.com.”
Before the CARD Act some credit report companies had somewhat misleading advertisements that touted free credit reports but caused many consumers to be confused about which website was the official government run website for obtaining annual credit reports. Credit reporting companies are now compelled to announce in all of their marketing that they are not the official government credit report source and that once a year the government mandates the availability of a free credit report for every US citizen at AnnualCreditReport.com.
CARD Act: Late Credit Card Payments
In a Nutshell: “Credit card statements must make it very clear to cardholders when their payments are due and at what date they will be assessed a late payment fee if they pay their credit card late.”
The CARD Act requires all credit card companies to make credit card payment due dates and credit card late payment fee information very prominent and very easy to understand on all credit card statements.
CARD Act: Cardholder Agreements
In a Nutshell: “Credit card companies must post all credit cardholder agreements online and also submit them to the Federal Reserve.”
The credit card act of 2009 requires all card issuers to publish their cardmember agreements to the Internet and then also submit a copy of the cardmember agreement to the Federal Reserve so that consumers can always know where to find a copy of their credit card agreement.
CARD Act: Credit Card Payoff Time Disclosure
In a Nutshell: “Credit card companies must prominently display the amount of time it will take a consumer making the minimum required payments to pay off their credit card and the total amount that they will pay including interest charges.”
The new credit card payoff regulations in the CARD Act compel credit card companies to make it very plain and clear on every credit card statement the amount of time that it will take a consumer to pay off their credit card if they just make minimum payments (similar to our credit card payoff calculator).
CARD Act: Penalty Interest Rate Disclosure
In a Nutshell: “Credit card issuers must fully disclose on every monthly credit card statement near the minimum payment line what the credit card penalty interest rate is and how one can find themselves subjected to this increased interest rate.”
The CARD Act penalty interest rate rules require disclose on every credit card statement right next to the required minimum payment line so that cardholders understand what their credit card’s penalty interest rate is and how and when the penalty interest rate APR kicks in.
CARD Act: Consumer’s Rights to Opt Out of Changes
In a Nutshell: “When a credit card company makes a substantial change to their terms and conditions then consumers have the right to opt out of those new changes. Consumers may not make new purchases with the card but they are able to pay off their card under the old credit card terms and conditions in one of three different ways.”
The credit card act’s regulations for opting out of cardholder agreement changes allows the consumer to have a period of time to opt out of the new changes announced by the credit card company. If the cardholder chooses the opt out of the credit card changes then the cardholder cannot make any new purchases with the credit card and they are not required to pay off the card balance in full right away but they have 3 different ways that they must start to repay their existing card balance (the method is determined by the credit card issuer). The first method is for the credit card company to collect the balance over the course of 5 years. The second method is for the card issuer to change the formula for calculating the required minimum payment to up to twice the percentage that is was under the old credit card terms. The third method is for the card issuer to use the exact same repayment plan as the customer was originally on before they opted out of the new credit card changes.
CARD Act: Credit Card Studies
In a Nutshell: “Different Federal Agencies are responsible to conduct ongoing studies of the credit card market.”
The CARD Act commissions numerous Federal Agencies to set out to do studies of the credit card market to assess any problems that may need addressing with future credit card legislation. Some of the study topics include merchant interchange fees, small business credit cards, emergency PIN numbers, small business data security, credit availability, credit profiling, and stored value cards.
CARD Act: Estate Settlement
In a Nutshell: “When someone dies with credit card debt credit card companies are mandated to give final credit card debt payoff numbers promptly to the estate administrator.”
The credit card act estate settlement rules require credit card companies to assist estate administrators in a timely fashion when it comes to providing credit card debt payoff figures for the credit card debt of the decedent.
CARD Act: Ability to Repay Credit Card Debt
In a Nutshell: “Credit card companies must closely consider a cardholders ability to repay credit card debt before choosing to extend to them an increased credit limit or a new credit card account.”
Before the CARD Act a good credit score was often enough of a trusted indicator to many credit card companies that they would extend credit without peering too closely into an individual’s ability to repay the debt. Now the credit card act ability to repay debt guidelines require all companies to dig into a person’s ability to pay.
CARD Act: Credit Insurance Programs
In a Nutshell: “Credit insurance policies that charge a credit card customer a monthly fee for a promise to make or postpone credit card payments if the cardholder becomes sick, disables, unable to work, etc. must be studied more closely by the Comptroller General of the United States.”
The CARD Act requires the Comptroller General of the United States to closely student the various credit card insurance policy options that are commonplace as an addon benefit to many credit cards.
CARD Act: Penalties for Violating the CARD Act
In a Nutshell: “Those who violate any provision of the CARD Act can be fined at least $500 and up to $5,000.”
The CARD Act also stipulates the penalties for any credit card act violation that must be at least $500 and no more than $5,000.
CARD Act: Financial Literacy & Fluency in English
In a Nutshell: “Studies are commissioned to decide on financial literacy programs, how to fund financial literacy programs, and whether those who are not fluent in English are financially literate.”
The credit card act financial literacy and English fluency provisions are designed to kick start studies that will foster programs to enhance financial literacy and address the special financial concerns of those who do not speak English.
CARD Act: Guns in Federal Parks & Refuges
In a Nutshell: “Visitors to Federal Parks and Federal Refuges are able to carry guns provided that they are in compliance with state gun law.”
The CARD Act also has a provision that has nothing even remotely to do with credit cards and that is that visitors to Federal Refuges and Federal Parks are allowed to carry guns as long as they are not breaking any state law.
CARD Act: Loan Modification & Foreclosure Assistance Mortgage Lending Practices
In a Nutshell: “Companies assisting homeowners in foreclosure or with loan modification programs are subject to the authority of the FTC.”
The CARD Act defines the role of the Federal Trade Commission (FTC) in relationship to mortgage lenders and gives state attorney generals the power to pursue civil suits against mortgage companies that are deceptive in their loan modification or foreclosure assistance programs for homeowners.
Finding the Best Credit Card Under the New CARD Rules
No matter whether you think that the CARD Act is good or bad for consumers and credit card companies one this is for certain: it is still important to do your research and be an informed credit card shopper. Check out our free tools like our nifty credit card calculators, or read through our credit card reviews, and of course be sure and use our easy to use free credit card finder on our home page to compare credit cards today!
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