The Credit Card Act of 2009 - A Quick Overview
In May 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 was signed into law.
This new law is intended to help protect consumers from the credit card industry's history of abusive penalties and fees, sudden interest rate increases, and other unjustifiable changes in account terms.
The major provisions of the Credit CARD Act will take effect on February 22nd, including: The practice of Double-cycle billing, also known as two-cycle billing, will be banned.
This practice was used by some credit card companies to calculate statement interest charges, and was deemed unfair.
A card company, using double-cycle billing, not only considered the current balance on the credit card, but also factored in the average daily balance from the previous billing period...
even if a portion of that previous balance had been paid.
Payments to cards with multiple interest rates will be credited differently.
Some card issuers apply a consumer's payment toward balances with the lowest rates first...
leaving the highest-rate balances to continue accruing interest costs.
With the new provision, the card companies will be required to apply any amount paid to the highest-rate balances first.
Prohibitions and restrictions on rate increases: Beginning February 22nd, credit card issuers will not be permitted to increase the Annual Percentage Rate or APR (the cost of credit expressed as a yearly rate, including interest and other charges) on existing balances for one year after the account is opened.
Beginning with the second year of the account, the card issuer can raise the consumer's interest rate, but the higher rate can only be applied to new transactions and it cannot exceed any potential interest rate increase previously disclosed to the cardholder.
45-day advance notice of any rate increase or other significant changes in account terms...
up from the current 15 days.
In the notice, consumers must also be informed of their right to cancel their card before the rate increase or account changes take effect.
Any consumer who does decide to cancel their card will repay their outstanding balance at the "old" (lower) rate and cannot be forced to immediately pay off their card.
Monthly credit card statements will be required to include a box showing cardholders how much they have paid in interest and in fees during the current year.
Also, to help consumers better plan the repayment of their card balances, the statements must show the monthly payment amount necessary to pay off the existing balance within 36 months.
The monthly amount shown will include the total cost of both payments and interest...
similar to an installment loan.
Protection for young consumers: Companies will be prohibited from issuing a credit card to consumers younger than 21, unless they submit a written application that includes the signature of a co-signer over the age of 21.
Also, companies will be restricted from making pre-screened offers of credit to someone under 21 unless they have given prior consent to receive them.
Over the limit fees: Effective February 22nd, credit card companies may not impose any fees for making a purchase, or other transaction, that would put the account over its credit limit unless the cardholder gives permission to process the over-the-limit transaction and be charged a fee.
Furthermore, only one over-the-limit fee may be imposed during the billing cycle that the limit is exceeded...
not for each transaction that exceeds the credit limit.
Also, if the cardholder remains over their limit and has no additional transactions, another over-the-limit fee can be imposed only one time during each of the next two billing cycles.
While the Credit CARD Act of 2009 represents the most across-the-board change for consumer protection since the Truth in Lending Act was enacted in 1968, consumers must still do their part to better manage their credit cards.
One way this can be done is by making sure you understand all the terms of a credit card before signing up for it.
Also, make sure to review your credit card bill each month, as well as any new disclosures and account changes that may be included.
This new law is intended to help protect consumers from the credit card industry's history of abusive penalties and fees, sudden interest rate increases, and other unjustifiable changes in account terms.
The major provisions of the Credit CARD Act will take effect on February 22nd, including: The practice of Double-cycle billing, also known as two-cycle billing, will be banned.
This practice was used by some credit card companies to calculate statement interest charges, and was deemed unfair.
A card company, using double-cycle billing, not only considered the current balance on the credit card, but also factored in the average daily balance from the previous billing period...
even if a portion of that previous balance had been paid.
Payments to cards with multiple interest rates will be credited differently.
Some card issuers apply a consumer's payment toward balances with the lowest rates first...
leaving the highest-rate balances to continue accruing interest costs.
With the new provision, the card companies will be required to apply any amount paid to the highest-rate balances first.
Prohibitions and restrictions on rate increases: Beginning February 22nd, credit card issuers will not be permitted to increase the Annual Percentage Rate or APR (the cost of credit expressed as a yearly rate, including interest and other charges) on existing balances for one year after the account is opened.
Beginning with the second year of the account, the card issuer can raise the consumer's interest rate, but the higher rate can only be applied to new transactions and it cannot exceed any potential interest rate increase previously disclosed to the cardholder.
45-day advance notice of any rate increase or other significant changes in account terms...
up from the current 15 days.
In the notice, consumers must also be informed of their right to cancel their card before the rate increase or account changes take effect.
Any consumer who does decide to cancel their card will repay their outstanding balance at the "old" (lower) rate and cannot be forced to immediately pay off their card.
Monthly credit card statements will be required to include a box showing cardholders how much they have paid in interest and in fees during the current year.
Also, to help consumers better plan the repayment of their card balances, the statements must show the monthly payment amount necessary to pay off the existing balance within 36 months.
The monthly amount shown will include the total cost of both payments and interest...
similar to an installment loan.
Protection for young consumers: Companies will be prohibited from issuing a credit card to consumers younger than 21, unless they submit a written application that includes the signature of a co-signer over the age of 21.
Also, companies will be restricted from making pre-screened offers of credit to someone under 21 unless they have given prior consent to receive them.
Over the limit fees: Effective February 22nd, credit card companies may not impose any fees for making a purchase, or other transaction, that would put the account over its credit limit unless the cardholder gives permission to process the over-the-limit transaction and be charged a fee.
Furthermore, only one over-the-limit fee may be imposed during the billing cycle that the limit is exceeded...
not for each transaction that exceeds the credit limit.
Also, if the cardholder remains over their limit and has no additional transactions, another over-the-limit fee can be imposed only one time during each of the next two billing cycles.
While the Credit CARD Act of 2009 represents the most across-the-board change for consumer protection since the Truth in Lending Act was enacted in 1968, consumers must still do their part to better manage their credit cards.
One way this can be done is by making sure you understand all the terms of a credit card before signing up for it.
Also, make sure to review your credit card bill each month, as well as any new disclosures and account changes that may be included.
