The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (or “CARD Act”) went into effect on Monday, February 22. The purpose of this Act was to prevent credit card companies from using predatory lending practices and excessive penalties for credit card customers. Note, however, that the CARD Act only applies to personal credit cards, not business credit cards.
Key provisions of the CARD Act include:
- Interest rates on existing balances cannot be changed unless (1) your payment is 60 or more days late; or (2) you have an introductory rate that expires.
- If a payment is more then 60 days late, but your payments for the next 6 months are all on-time, the credit card company must reduce your interest rate back to the original rate.
- Interest rates on new purchases can be changed, but the credit card company must give you 45 days notice before raising your rate. You can opt out of the rate change, but that means your account will be closed and you will have five years to pay off the existing balance at the existing interest rate. There are some exceptions to this rule, however. For example, if you have a variable rate card tied to the prime rate, this provision does not apply.
- Credit card companies can no longer use the “universal default” provision that some were using. If you pay late or default on any account (credit card, utility, etc.), other card issuers can no longer raise your interest rate on your existing balance on those cards.
- Credit card companies can no longer approve a charge that exceeds your limit and then charge you an over-limit fee and penalty interest rate. Beware of “opt-in” offers to avoid over-limit fees, as this is a scam.
- You cannot be charged for paying online, by mail, or over the phone, unless you speak to a live operator and then they must disclose the fee before you pay.
- Payment due dates must be the same every month, and if the due date falls on a holiday or weekend, the payment is due the next business day.
- Your bill must now disclose how long it will take to pay off the current balance if you only pay the minimum amount each month, as well as the total amount of principal and interest you would pay over that time period.
- Anyone under 21 cannot get a credit card without either (1) proof of income to pay the bills or (2) an adult co-signer.
One problem with the CARD Act, however, is that it was signed into law in May 2009, but did not become effective until this week. This gave credit card companies significant time to find ways around the new laws, including cutting credit limits and raising interest rates before the restrictions on such practices went into effect. Some other new negative practices include:
- Closing accounts or charging fees for inactivity or even for “low activity”
- The return of annual fees to many cards – even if you have never had an annual fee on a particular card, there is nothing to stop the card issuer from charging one now
- Converting fixed rate cards to variable rate cards, and setting these rates with a floor that they will never fall below
- Redefining terms of certain fees, such as what is considered an “international transaction”
- Increasing balance transfer fees and cash advance fees
- Adding fees for paper statements
- Changing the terms of rewards programs or eliminating such programs altogether
- Stricter review of who is issued credit
- Reducing credit limits without warning
Pay attention to all correspondence from your credit card company, and if they are acting in a way that should be covered by the CARD Act, call and complain. If that doesn’t work, contact your US Senator or Representative.
This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.
