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Credit CARD Act of 2009 Guide: How It Affects Us

Posted By Jim On 02/15/2010 @ 7:06 am In Credit | 39 Comments

Last year, you probably read a lot in the news about the Credit CARD Act of 2009 [3] 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 [4]), much of it was just pre-bill posturing.

What Is It?

H.R. 627 The Credit CARD Act of 2009 [3] 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 [5] (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 [6] 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 [7] 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 [8])

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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/credit-card-act-of-2009-guide.html

[3] Credit CARD Act of 2009: http://www.opencongress.org/bill/111-h627/show

[4] annual fee unless they spent a certain amount each year: http://www.bargaineering.com/articles/credit-cards-requiring-minimum-annual-purchases.html

[5] outlined by the Federal Reserve: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100112a1.pdf

[6] change your statement due date: http://www.bargaineering.com/articles/change-your-credit-card-due-dates.html

[7] state gift card protections: http://www.bargaineering.com/articles/review-your-states-gift-card-rules.html

[8] thetruthabout: http://www.flickr.com/photos/thetruthabout/3320605778/sizes/s/

Thank you for reading!