On Friday, May 22, 2009, President Obama signed into law the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which affords consumers with sweeping protections from abusive credit card practices. The New York State Department of State Division of Consumer Protection was among the vocal advocates for reform, and is concerned about potential actions that credit card companies may take as reforms are implemented. See below for information regarding key provisions of the CARD Act of 2009.
Please note that these provisions were effective February 22, 2010, unless otherwise specified
Special Provisions for New Accounts:
Creditors can generally not raise interest rates, or any fees, during the first year after an account is opened, except:
- When the increase is due to a variable indexed interest rate.
- At the end of a promotional rate period, provided that proper notice is given and that the promotional period is at least 6 months in duration.
- If the required minimum payment is not received within 60 days after the due date. The consumer must be given notice for the reason of the interest rate increase and told that the increase will terminate within 6 months if the creditor receives all minimum payments on time during that period.
Notice of Future Interest Rate Increases or Other Significant Changes: (Effective Date August 20, 2009)
After the first year, the card issuer can raise the interest rate on future purchases, or make other "significant" changes in terms with 45 days advance notice. The notice shall advise the consumer of the right to cancel the account. No notice is required for changes to interest rates as set forth above.
Interest Rate Increases on Existing Balances:
Credit card issuers cannot raise interest rates on existing balances, except:
- When the increase is due to a variable indexed interest rate.
- At the end of the promotional rate period, provided that proper notice is given and that the promotional period is at least 6 months.
- If the required minimum payment is not received within 60 days after the due date. The consumer must be given notice for the reason for the interest rate increase and told that the interest rate increase will terminate within 6 months if the creditor receives the minimum payments on time during that period.
Repayment of Outstanding Balance:
If the creditor changes the terms of repayment for an outstanding balance, or if the account is closed or cancelled, the creditor must either:
- Structure the balance to be paid over at least 5 years; or
- Require a minimum monthly payment that is no more than twice the percentage used of the old minimum balance.
Limits on fees and penalties:
- No over-the-limit fees may be charged unless the consumer has given permission for over-the-limit transactions.
- An over-the-limit fee may be imposed only once per billing cycle where the balance is over the credit limit.
- No fees can be charged to make a payment online, via telephone, by mail, or by other means, except for an expedited payment arranged through a service representative.
- A card issuer who increases the interest rate because of market or risk factors must review the account every 6 months and decrease the rate if indicated by the review.
- The Federal Reserve announced new credit card rules that took effect on August 22, 2010. These include:
º Prohibit credit card issuers from charging a penalty fee of more than $25 (adjusted annually by the Federal Reserve Board according to the Consumer Price Index) for paying late or otherwise violating the account's terms unless the consumer has engaged in repeated violations ($35 for an additional violation of the same type during the next six billing cycles) or the issuer can demonstrate that a higher fee represents a reasonable proportion of the costs its incurs as a result of violations.
º Prohibit credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer's violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.
º Ban "inactivity" fees, such as fees based on the consumer's failure to use the account to make new purchases, and other fees when there is no dollar amount associated with the violation.
º Prevent issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
º Require issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate no later than 45 days after completing the re-evaluation. The evaluation occurs every six months.
Double Cycle Billing:
Double cycle billing is generally prohibited. In other words, a creditor cannot reach back to the previous billing period and consider that cycle's balance when calculating the amount of interest charged in the current cycle.
Ability to Pay:
Credit Card issuers must consider the consumer's ability to make the required payments before opening a new account or raising a consumer's credit limit.
Application of Payments:
Amounts in excess of the minimum payment must be applied to the balance with the highest interest rate, except during the last two billing statements before a deferred interest balance is due, where excess payments must be applied to the deferred balance.
Payment Due Dates:
- Credit card issuers must mail the billing statement at least 21 days before the due date. If there is a grace period, the grace period must extend 21 days after statement is mailed. (Effective Date: August 20, 2009)
- Credit card issuers must credit all payments received by 5 p.m.
- Due dates must be on the same day each month, (i.e., the 1st of each month).
- If the payment due date falls on a day that the creditor does not receive payments by mail (such as weekends or holidays), then the creditor cannot treat a payment received the following business day as late.
Increased Disclosures
- Creditors must disclose on the billing statement the period of time and total interest it will take to pay off a card balance if only minimum monthly payments are made.
- Periodic statements must clearly and conspicuously disclose the required due date and late payment penalty.
- Credit card agreements will be posted online on the issuers' websites.
Young Consumers
- Before issuing a card to a person under 21, the issuer must obtain an application which contains either:
- The signature of a co-signer over 21; or
- Information indicating an independent means of repaying any credit extended.
- Card issuers may not raise the credit limit on accounts jointly held by a person under 21 and a co-signer without written permission from the co-signer.
- Card issuers may not raise the credit limit on accounts jointly held by a person under 21 and a co-signer without written permission from the co-signer.
- No prescreened card offers can be made to persons under 21 unless they have consented to receive such offers.
- Card issuers cannot provide tangible gifts to students on campus in exchange for applying for credit.
- Colleges must publicly disclose all marketing contracts made with credit card companies.
- All card issuers must also submit an annual report to the Federal Reserve Board including the terms and conditions of all promotional agreements with colleges, including the number of accounts opened during the time period. These reports will be the basis of a report by the Federal Reserve Board to be given to Congress and the public.
Credit Reports
Advertisements for free credit reports must state that free credit reports are available under federal law at: AnnualCreditReport.com.
Fee Harvester or Subprime Cards
Where fees consume more than 25% of an available credit balance, they cannot be deducted from the available balance. For instance, a credit card has a limit of $200, and fees total $51, or over 25% of the available balance. A creditor cannot reduce the available balance by $51 to get its fees.