Credit "CARD" Act
Brent C. Diefenderfer
Recently, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the Credit CARD Act) went into effect. Congress saw a pressing need to protect consumers from abusive fees, penalties, interest rate increases, and other unjustified changes in the terms of credit card accounts. A new hike in the penalties for violators of the Act will provide extra incentive for compliance. A few of the highlights of the Act are:
Bans Retroactive Rate Increases. The Act prohibits rate increases on existing balances due to “any time, any reason” or “universal default,” and severely restricts retroactive rate increases due to late payments.
First Year Protection. Contract terms must be clearly spelled out and must remain in place for all of the first year. Companies may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and must last at least six months.
Ends Late Fee Traps. Institutions are required to give credit card holders a reasonable time to pay the monthly bill—at least 21 calendar days (up from 14) from the time of mailing. The Act also ends unscrupulous late fee traps such as weekend deadlines, due dates that change each month and deadlines that fall in the middle of the day.
Enforces Fair Interest Calculation. Credit card companies are required to apply excess payments first to the highest interest balance (usually for new purchases), as most consumers would expect them to do but which some companies have not done because it is not as profitable. The Act also ends the confusing practice by which issuers use the balance in a previous month, even if all or a part of it was paid off, to calculate interest charges on the current month. Many consumers likely were not even aware of this particular practice, called “double‑cycle” billing.
Requires Opt-In to Over-Limit Fees. Credit card holders will find it easier to avoid over‑limit fees because institutions now have to obtain a consumer’s permission to process transactions that would place the account over the limit. So that consumers can better avoid unnecessary costs and manage their finances, creditors must give consumers clear disclosures of account terms before consumers open an account and clear statements of the activity on consumers’ accounts afterwards.
Restrains Unfair Sub-Prime Fees. Fees on sub-prime, low-limit credit cards will be substantially restricted.
Limits Fees on Gift and Stored Value Cards. The Act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.
Plain Language in Plain Sight: Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers’ accounts afterwards. For example, pre-opening disclosures will highlight fees consumers may be charged and periodic statements will conspicuously display fees they have paid in the current month and the year to date as well as the reasons for those fees.
Cleans Up Credit Card Practices For Young People. The Act contains new protections for college students and young adults, formerly a favorite target for blanket marketing of credit cards. Among other things, there is a new requirement that no card be issued to anyone under 21 unless he or she submits a written application, with either the signature of a co-signor over 21 or information showing independent means for repaying the credit card debt. Colleges and Universities must also disclose agreements with respect to the marketing or distribution of credit cards to students.
For Questions regarding the Credit CARD Act, contact Brent Diefenderfer of CGA’s Bankruptcy and Debt Restructuring Practice Group.