New Credit Card Rules - A Summary of the Credit CARD Act of 2009 (Credit Card Accountability Responsibility and Disclosure Act of 2009)
Important Note: These credit card protections do NOT apply to business credit cards.
APR Rate Increases
Any APR rate increase:
- requires at least 45 days notice;
- cannot be applied retroactively to existing balances;
- requires clear notice of right to cancel credit card when APR is raised.
- cannot be applied because either repayment terms or the card was cancelled by the cardholder.
- cannot be applied unless the cardholder actually violated the terms of the agreement for which a fee is assessable – not because of universal default, in which the cardholder's APR interest rate is increased because of late payments or default on other credit cards, even by the same issuer.
- Prohibits double cycle billing, which is charging for interest for balances that were paid by the due date.
- No interest can be charged on fees.
- Overlimit charges can only be charged 1 time during a billing cycle because the cardholder overextended their credit, not because a fee or interest charge caused the credit limit to be exceeded.
- Creditors cannot charge fees for method-of-payment delivery, including by mail or telephone.
- Transaction fees, including foreign exchange fees, must be closely proportional to the actual costs of the transactions, and the creditor must disclose the method of calculating the fee.
- Requires issuers to lower penalty rates that have been imposed on a cardholder after 6 months if the cardholder commits no further violations.
Credit Card Marketing
- Cardholders must have the option of not allowing over-the-limit transactions.
- Creditors must use the legal definition for the terms fixed rate and prime rate.
- A cardholder's credit report cannot be adversely affected until they actually activate a preapproved credit card.
- The terms of a credit card contract cannot be changed unilaterally.
Extensions of Credit to Consumers Under Age 21
- Credit card issuers, when soliciting to persons under age 21 (hereafter, underage consumers), must obtain an application that contains either:
- the signature of a parent, guardian, other qualified individual willing to take financial responsibility for the debt;
- information indicating an independent means of repaying any credit extended; or
- proof that the applicant has completed a certified financial literacy or financial education course.
- Credit card issuers, as a condition for entering into commission-based affinity cards with higher education institutions, must require that all affinity cards for underage customers comply with the above requirements.
- Firm offers of credit or insurance that are not initiated by underage consumers cannot be listed in credit reports unless they agree in writing.
Application of card payments.
- Cardholders must be given ample time to make their payments. Creditors are now required to mail credit card statements at least 21 days before the bill is due, which is 7 days longer than what the law required previously. Any payments made at local branches of the creditor must be credited for the same day.
- Creditors cannot assessed late fees if they resulted from the creditors' delay in posting the payments. A creditor must revoke a late fee if the cardholder presents proof that the payment was mailed within 7 days of the due date.
- Excess payments (amounts that are above the minimum payment) must be applied first to balances with the highest interest rate to minimize finance charges.
- Note that to pay down higher interest debt before lower interest debt, you must pay more than the minimum monthly amount, and only that excess amount will be applied to the higher interest debt.
- Credit card issuers must provide individual consumer account information and disclose the time it will take to pay off the card balance and the total amount of interest paid if only minimum monthly payments are made.
- Billing statements must disclose required payment due dates and applicable late payment penalties.
- Card issuers must alert the consumer to any changes in the terms of agreement when the card is renewed.
Credit Card Companies and their Primary Regulators
- Increases penalties for companies that violate the Truth in Lending Act for credit card customers.
- The primary regulator of the companies must evaluate the credit card policies and procedures of card issuers to ensure compliance.
- Improves data collection by the primary regulator on credit card interest rates, fees, and profits.
Federal banking agencies.
- Federal banking agencies will have the authority to prescribe regulations governing unfair or deceptive practices by depository institutions under their supervision.
- Federal banking agencies must prescribe such regulations:
- jointly to the extent practicable; and
- in consultation with the Federal Trade Commission (FTC).
- The Comptroller General must report to Congress on the status of regulations of the federal banking agencies and the NCUA regarding unfair and deceptive acts or practices by depository institutions.