The Credit CARD Act: A Rundown

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 helps ensure that card issuers act fairly and do not try to find loopholes to exploit naïve customers. President Barack Obama signed it on May 22, 2009.

“With this new law, consumers will have the strong and reliable protections they deserve,” President Obama said. “We will continue to press for reform that is built on transparency, accountability, and mutual responsibility – values fundamental to the new foundation we seek to build for our economy.”

Under this act, banks are required to be more upfront about fees and the due dates for payments. The due date must fall on the same day each month, and the cut-off time must be 5 p.m. or later. Double-cycle billing, where interest is charged for both the previous and current balance, is no longer allowed.

There are new limitations on raising interest rates. Card companies are prohibited from raising introductory “teaser” rates unless the account is 60 days delinquent. This applies to balance transfer offers, too. Issuers cannot retroactively raise interest rates on existing balances unless a teaser rate expires, the rate is tied to an index, the account holder fails to pay as agreed on a debt workout plan, or the account is 60 days delinquent. If the account holder makes timely payments for a 6-month period, the issuer must restore the lower rate.

The law limits late fees in most cases to an amount equal to the minimum payment or $25 per month, whichever is lower. The issuer can charge a higher fee if the cardholder is repeatedly late or the issuer has evidence that the costs incurred by the missed payment require a higher fee.
The law is costing banks some money in fees, but on the good side, customers are now more protected. Additionally, while banks engage competition with attractive offers such as 0% balance transfer deals, the card issuers look to offset their losses by inventing new fees and policies that do not violate the CARD Act. The banks still manage to fill their coffers, but may subsequently hurt the American consumer. This is why the transparency created by the new law — and soon to be broadened by the new Consumer Financial Protection Bureau — is so important to helping consumers make intelligent choices when selecting a credit card.

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