Credit CARD Act of 2009 Guide: How It Affects Us

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Visa MasterCard AMEX DiscoverLast year, you probably read a lot in the news about the Credit CARD Act of 2009 and how it had credit card companies running for the hills. There were stories about how issuers were going to start implementing annual fees, cut back on reward programs, and how the credit card industry was going to get rocked. While some of it has come true (Citi has notified some cardholders that there would be an annual fee unless they spent a certain amount each year), much of it was just pre-bill posturing.

What Is It?

H.R. 627 The Credit CARD Act of 2009 amended the Truth in Lending Act to establish new rules for what credit card issuers could do to credit card holders. The bill put in place several consumer protections, most notably restrictions on interest rate hikes, fees, and penalties, that will begin taking effect this month. Several other notable provisions include bans on issuing cards to minors (under the age of 18) and increasing the requirements for those under the age of 21.

Some provisions went into effect on August 20 but the bulk of the major changes will begin in one week, on February 22nd. This article will discuss those changes you should see next week as they were outlined by the Federal Reserve (they issued guidelines explaining how the provisions of the Act were to be followed).

The Credit CARD Act’s original name was the Credit Card Accountability Responsibility and Disclosure Act of 2009 until it was shortened to CARD and the bill was signed into law by President Obama on May 22nd, 2009.

Major CARD Act Rules

I suspect most issuers will be in compliance, as they’ve had almost a year to put these changes into effect, it’s still important to know the law in case unscrupulous issuers try to pull some tricks.

  • Card issuers cannot increase the interest rate on a credit card within the first year unless (not limited to this list but these are the most common reasons): 1) it’s the end of an introductory rate, 2) it is a variable rate tied to an index like the LIBOR, 3) cardholder is more than 60 days late on a payment (though the cardholder can get back to the original interest rate if they are on time for six months).
  • *Issuers can increase minimum payment requirements without notification and cardholders cannot opt out (the argument is that this is actually good for cardholders).
  • Issuers cannot retroactively apply rate increases to existing balances.
  • Interest rates can be increased as long as issuers give 45 days advanced notice (this applies to any change to the credit card agreement) and permit customers to opt out. (cardholders more than 60 days late cannot reject APR increases)
  • When you make a monthly payment, any amount over the minimum payment due must be applied to the highest interest rate balance first, then the next, etc.
  • Double cycle billing is not permitted.
  • Universal default is not permitted.
  • Monthly statement due dates must be the same day every month. If that happens to be a weekend or holiday on a particular month, the payment must be applied on the next business day without penalties. If the issuer changes their address or their payment procedure, the issuer cannot charge late fees to anyone for 60 days. (you can change your statement due date by asking the issuer)
  • Over-limit must be opt in and the cardholder must be able to opt out anytime. If a cardholder opts out and a charge would put them over their credit limit, the charge will be rejected.
  • Issuers cannot charge customers extra fees to pay their bill unless it is an expedited payment.
  • Statements must be sent to cardholders at least 21 days before due dates.

What does opting out of an interest rate hike mean? In the case of card agreement changes, cardholders have the right to “opt out” of those changes. When you opt out, you will no longer be able to use the card to make purchases but you continue to pay off the balance at the original interest rate. The credit card company has a few options for what they can do:

  • Have you repay over five years,
  • Charge a minimum payment that is equal to twice the percentage charged before they changed the terms,
  • Keep the same payment as before.

NOTE: None of the options include complete repayment of the balance.

New Rules for Minors, College Students

  • Those under the age of 21 will need to get co-signers or prove they have an independent source of income and can repay the debt.
  • If a college or alumni association makes a deal with credit card marketers that discloses student/alumni information, this must be disclosed to the Federal Reserve Board.
  • Credit card companies will not be allowed to setup within 1,000 yards from campus and offer gifts to students to get them to sign up for a credit card. No more tables of funny t-shirts for you to apply for a credit card!

New Gift Card Rules

The Card Act wasn’t restricted to just credit cards, it instituted new rules for gift cards as well. Prepaid cards, gift cards and certificates cannot expire within 5 years unless the terms are clearly stated. The Act also bans dormancy or inactivity fees unless the card has not be used in a 12 month period and the fees are clearly stated. Remember, your state gift card protections may exceed these federal protections and the strongest law wins.

The law has some other less specific provisions that probably don’t apply to most people. It calls out for various studies on credit availability, merchant interchange fees (what the credit card processing industry charges businesses to accept cards), and other credit related items. There are provisions for credit card debt and estate issues, financial literacy, and a bit on what happens if an issuer violates the law (minimum fine of $500 and a max of $5,000).

Whew! That’s a lot isn’t it? Please let me know what you think of the act!

(Photo: thetruthabout)

{ 39 comments, please add your thoughts now! }

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39 Responses to “Credit CARD Act of 2009 Guide: How It Affects Us”

  1. Steve says:

    RE: . . . (though the cardholder can get back to the original interest rate if they are on time for six months).

    Question: as to the “original interest rate,”
    it seems the big question should be “the original interest rate as of when?”
    As we all know, many, if not most, card issuers greatly increased rates on existing accounts over the last year. For purposes of this provision, is the “original interest rate” the rate when the new law goes into affect (i.e., on Feb. 21, 2010)?

    I’d be thrilled to get back to “my original rate” from about May of last year which was 9%. Later last summer, the bloodsuckers at BoA jacked that rate into the mid 20% range – through no fault of my own. If that’s now my “original rate,” I’m not too thrilled.

    • chris anderson says:

      I wish someone would answer this. If the credit card company raises your rate to 50% on February 20th, does that mean you’re stuck with that rate forever?

  2. Maddhatter says:

    I’m not convinced this helped out as much as originally intended; however, it really doesn’t change anything for me – pay off my bill every month and if they try to tack on some fee or something go to a different card (or if they all do it go Dave Ramsey on them and use cash).

    • Yeah, I’m in the same boat. Nothing in this bill really changes things for me as I pay in full every month. Hopefully they don’t take away more rewards as they have already done.

      • Shirley says:

        I agree with you there. The ability to make purchases online with one-time-only CC numbers would be the only incentive left for me to use a Credit Card… although returning to writing checks (I don’t use ATMs) would certainly be a major pain in the rear.

      • Jim says:

        I think the annual fees / minimum purchase requirements are trying to combat the removal / reduction of rewards.

    • Jim says:

      It probably doesn’t go as far as originally intended but it’s certainly a step in the right direction. Getting rid of the most egregious (double cycle billing, universal default, etc.) is better than nothing.

  3. Steve says:

    Can’t argue with your point: cash is king. But, I still want to know what constitutes the “original rate.”

  4. Shirley says:

    *Issuers can increase minimum payment requirements WITHOUT notification and cardholders cannot opt out (the argument is that this is actually good for cardholders).

    Hmm… I see this as causing some problems for those on a really strict budget.

    • Jim says:

      I agree, but medicine doesn’t always taste good. 🙂

      • echidnina says:

        Very true. I guess it’s a matter of pushing the bird out of the nest to teach it to fly… hopefully this will encourage people who rely on credit cards to plan their finances a little better.

    • Steven says:

      Low minimum payments are one of the things that got us into this mess in the first place.

  5. zapeta says:

    I’m kinda ticked that it won’t be easy to get a ton of free t-shirts by signing up for credit cards on campus anymore. I used to do all of those deals and just cut up the cards when they came.

    • Soccer9040 says:

      Did you ever check your credit after doing that?? Either your credit limits shot through the roof which probably raised your score, or you got dinged for applying for too many cards in too short of a time period.

  6. Big Spender says:

    The only problem with the CARD Act is that banks still have the upper hand in tweaking their terms and conditions to stack that deck against consumers.

    It’s a shell game, and the customer always loses.

  7. I wish that the CARD Act would have done more to promote transparency in marketing and educating consumers about how the different terms work rather than placing all of the different caps, fees, limits, etc. which only ends up hurting consumers in the end by making it more difficult to get access to credit.

    • uci10 says:

      I totally agree, for the average consumer that uses a credit card, they probably still don’t understand how APR is calculated. By putting limits on various rates and fees this will only cause companies to find more ways around these caps by reducing rewards or adding new types of clauses to generate more revenue for their bottom line.

  8. cubiclegeoff says:

    As usual, policy only deals with a portion of the problem and causes additional problems in return. At least it’s a start.

  9. Good summary, Jim. While many of the posters are expressing legitimate observations and concerns, I wonder how many things will take place that nobody is expecting. My guess is that things will happen due to these changes that we cannot anticipate.

  10. Cheap Bastard says:

    This rule scores big points with me:

    “Over-limit must be opt in and the cardholder must be able to opt out anytime.”

    Next time I loan a credit card to someone in need, I’ll be able to control it! This is so important.

    Last time I loaned out my card, the borrower racked up twice what the “credit line” implied it would limit. When I called the bank, they refused to stop raising the limit. My only choice was cut the person off, or let them run it up uncapped!

    • Tim says:

      You can control it more by not lending someone your credit card that you obviously cannot trust to charge within the credit limit. I find it ridiculous to think that you blame the credit card company for your borrower’s uncontrolled spending. You should be cutting the person off or not lending them your card if you cannot trust them enough to spend within the card’s limits.

      I think it is ridiculous, though, for credit card companies to give you a credit limit and allow charges over your credit limit and charge you an over the limit fee. But I think it is equally ridiculous that people game the system which required this provision. If you are that close to your credit limit, you ought to really evaluate your financial behavior.

      • Cheap Bastard says:

        Tim, I think you should leave it to card holders to decide who they can and cannot trust with credit cards, within the limits of the product. In any case, card holders should be able to trust banks to honestly convey the rules and attributes of a financial product. I think your endorsement of misleading limits is hideous.

        I did not loan my card to anyone with evil intentions. It was someone who simply has no awareness of where the limit is, and little awareness of their consumption. I knew that, and was quite okay with it, under the assumption that the banking product worked as it was presented to work.

        Your second paragraph calls into question the purpose of the limit. Why have a limit at all, if you agree with uncontrollable increases? Answer: because credit cards exploit *by design*, take advantage of unwitting consumers. And to some extent, rightly so, because it’s the banks job to profit.

        This is absolutely a good rule, and the status quo borders on fraud (misrepresenting the limit).

  11. Tim says:

    I’m not sure what you meant by much of it being pre-bill posturing. Card companies did indeed increase rates, sometimes more than twice since the bill was signed. Others did implement annual or monthly fees. Others did decrease rewards programs by making it more difficult (e.g. requiring increased purchases) to earn rewards points or cash back. All of this has happened, we’ve seen it even with companies folks really like. A few companies and changes since the Act that we’ve personally seen:

    USAA changed terms to require higher charges to reach higher tier level. They also increased their credit card rates

    Citi increased rates twice and started annual fees

    Bank of America decreased credit limit and increased interest rates

    Pentagon Federal increased intl transaction fee

    Chase increased interest rate and started monthly fee

    we will continue to see additional fees which the CARD Act does not address. Chase’s monthly test fee was not throughout well. I have to admit that Citi’s new annual fee was thought out well, and I can see it becoming the unfortunate norm on dividend programs. It is a similar model Costco uses for its Executive Membership. I can also see other companies requiring higher charge levels to get max rewards and going to tiered rewards levels like USAA. There are many other fees I can think of that cc could implement that aren’t addressed under the CARD Act.

    I also believe the CARD Act doesn’t protect the consumer enough, because all this opting out has a price on a consumer’s credit score. I wish they would have included that credit scores could not be affected in an opt out case so long as the account remains current and paid down on time. Credit Age would be frozen.

    • pmulroy says:


      What do you mean the CARD Act doesn’t protect the consumer enough. The whole reason you are seeing all these new fees and interest rate increases is because the CARD Act tries to limit how these companies can make money because some people didn’t read the terms before racking up huge credit card bills and then were unhappy when the bills came due. The more “protections” you try to add into legislation like this, the more creative the companies are going to get in figuring out how to make money.

      Make no mistake, these companies will find a way to make money on credit cards, or they won’t offer unsecured credit to consumers.

      How would legislating more protections possibly help when the problem is that people have trouble with the concept of when you use your credit card you are borrowing money and you will have to pay it back eventually and will be charged interest until you do. You can not legislate away bad behavior/choices or stupidity in people.

      • Tim says:

        No, it absolutely does not protect the consumer from new fees and interest rate hikes. Where in the CARD Act do you see that? Most of the provisions simply delay the time between notification and execution of change in terms. You’ve had the ability to opt out of changes in terms and conditions by closing the account before.

        i find it odd that although a cc company changes a contractual term of increasing minimum payment, the CARD Act prevents you from opting out (someone will invariably challenge this).

        you are correct, most of this protects the consumer from themselves, rather than actually protecting the consumer.

        • pmulroy says:


          Let me give you an example:

          1)Consumer Joe runs up a balance on his 7.99% credit card and then the card issuer increases his interest rate to 15.99% because he has a variable interest rate card or a “pseudo-fixed” interest rate card(if you read the fine print the company allows themselves to change their fixed rate cards any time they wanted). The consumer is mighty unhappy because he is now paying twice as much interest and writes to congress.

          2)Congress says, hey Consumer Joe is right, it isn’t fair that the credit card company hiked up the rate on his balance! Consumer Joe thought he was borrowing at 7.99% and now they are charging him 15.99%, this needs to be illegal. And then they pass the CARD Act and credit card issuers can no longer raise interest rates on existing balances.

          3)Credit card company says well gee if we can’t raise rates on existing balances starting Feb 22nd, we better raise them before then and any new cards we offer afterwards better be at a higher interest rate than we were offering previously.

          And so now everyone gets their rates jacked up to 15.99% rather than the company possibly deciding at some point in the future to raise our rates.

          Do you see the unintended consequence of the CARD Act? It tries to prevent a consumer from getting their interest rate hiked up, but the end result is everyone who is carrying a balance will be paying a higher rate now instead of just some of them. Yet congress is patting themselves on the back for a job well done and consumers are happy with this result? It makes no sense.

          • Tim says:

            I’m trying to figure out what you are trying to say. The CARD Act more than allows cc companies to increase interest rates. The only thing that changed was extending notification.

            “Interest rates can be increased as long as issuers give 45 days advanced notice (this applies to any change to the credit card agreement) and permit customers to opt out. (cardholders more than 60 days late cannot reject APR increases)”

          • pmulroy says:


            Read the line above the one you are quoting: “Issuers cannot retroactively apply rate increases to existing balances.”

            I don’t know how to explain it any clearer, but I’ll give it one more shot:

            Pre-CARD Act:
            1) Annual fees rare (those with poor credit or certain rewards cards)
            2) Previous interest rate = US Prime Rate + 4.74(7.99% total)
            3) Generous rewards cards even on no annual fee cards

            Post-CARD Act:
            1) Annual fees coming back, possibly becoming the norm
            2) New interest rate = US Prime Rate + 11.74(14.99% total)
            3) Rewards programs being scaled back

            Do you not see the connection?

            Your original post that I responded to mentioned several card issuers that had recently started charging annual fees, reducing rewards, and increasing interest rates and then you claimed the CARD Act “doesn’t protect the consumer enough”. Do you not understand how the “protections” mandated by the CARD Act are the reasons all those credit issuers made the changes you are complaining about? To ask for even more protections beyond what the CARD Act provides would result in even more changes from the card issuers that you would be unhappy with.

  12. Austin says:

    I’ve noticed my Discover card statement has become easier to read, better organized, and includes more information.

    So far, so good!

    Austin @ Foreigner’s Finances

    • ziglet19 says:

      I also noticed on my last credit card statement that they showed how long it would take to pay off the balance if you only made the minimum payment. For those who only make the minimum payment and could make more, I think seeing an actual date and how much you’re actually paying is probably quite shocking and could be motivating.

  13. Jessica says:

    I was actually suprised that BOA sent me a notice explaining how clear the statements are going to be and they are. Also, they indicated that you will not be charged a late fee of you are a few days late on your payment. I do not plan to be late but for all those that are, I guess you have some wiggle room.

  14. jsbrendog says:

    this seems to be a good step forward. we iwlll have to see what loopholes they can find. as for me, I pay my balance off in full every month so I am not sure if this will really affect me as of now.

  15. eric says:

    I definitely think it’s better than nothing. I’m for it.

  16. Michael says:

    At least they didnt cap interest rates. That would have been a nightmare for anyone with good credit. Risky people should pay more, less risky people should pay less. But I fully believe that, except for a few isolated companies, had abused cardholders. To many people abuse credit by taking out excess loans and reporting inaccurate income (nope, they cant see your income, they have to trust what you enter) and defaulting. If everyone paid, we wouldnt have 29.99% interest, everyone would be at 7 or 9%. Its a uninsured debt.. Its expensive.

  17. Michael says:


    If “Consumer Joe” had his interest rates increased, he should have

    A. Either open a new card and do a balance transfer.
    B. Call and request to have it lowered (it works!)
    C. Call and close the account and pay it over 5 years.

    Its not a fixed interest rate because the risk is constantly changing. With a changing economy, the industry must adjust. If you chain the industry, it will fail. I agree on fair disclosure with BIG letters so people read them, but not with restrictions on what they can and cannot charge for. These are private contracts. If the consumer wants a fixed rate, then they should get a personal loan with set terms.

    Tying it to a rate is the only way to protect the companies from going belly up. If inflation skyrockets, if unemployment surges and defaults rise, if fraud increases.. These are just some of the many factors that define what they charge interest.

    A over the limit fee is like a speeding ticket. They give you a limit, just like a speed limit, so consumers should not go over it! Of course, if they change the limit, they should notify you (although with paperless billing, people are looking less and less at their bills).

    They never had to lend anyone money. Its on their terms, as it should be. Everyone would love to set their own conditions on borrowing, but this would ultimately lead to disaster.

  18. aua868s says:

    the view i hear from Freedom 970 channel here in Portland about te new Credit Card Actis that the Credit Crd companies have to “give more time” in case I cannot repay my balance..and that this could make the credit card companies very very selective about credit card issuing.

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