The Credit CARD Act of 2009 changed the rules for credit card companies, giving consumers more protections. But you may not know exactly how it can help you.
The Credit CARD Act of 2009 is officially called the Credit Card Accountability Responsibility and Disclosure Act of 2009, but it’s also sometimes referred to as just the CARD Act. Congress first passed the bill, which had support from both the U.S. Senate and House of Representatives, on May 22, 2009.
The CARD Act amended the Truth in Lending Act with a goal “to establish fair and transparent practices relating to the extension of credit under open end consumer credit plan, and for other purposes.” This law directly affects you if you have a credit card or have had one recently.
Why the Credit CARD Act of 2009 is important
The Credit CARD Act of 2009 is more important than many people may realize. The Consumer Financial Protection Bureau, or CFPB, released a report in 2015 detailing the law’s impact since going into effect. The CFPB found that consumers saved more than $7 billion in late fees and avoided more than $9 billion in over-limit fees from 2011 through 2014 alone.
In addition to saving consumers billions of dollars, the Credit CARD Act of 2009 helped by taking aim at confusing and harmful billing and business practices. The law restricted how and when creditors can raise the interest rates and fees on your credit cards. It regulated billing practices, standardized disclosures for consumers and limited how credit card companies can interact with young consumers.
What consumers need to know about their protections under the Credit CARD Act of 2009
Here are some of the biggest changes the Credit CARD Act of 2009 made and how they protect you.
Annual percentage rates
The CARD Act changed the rules around how and when creditors can change your annual percentage rate, or APR. For example, credit card issuers must notify you no later than 45 days prior to the effective date of APR increases or any other significant changes to the cardholder agreement.
Card companies also can’t just change your APR on a whim — this is especially restricted during the first year after an account is opened. They can do it only under certain circumstances. Here are a few examples.
- If a promotional period expires that was clearly and conspicuously disclosed to the consumer before it started. You might see this with an introductory balance transfer or purchase APR.
- You have a variable APR and there’s a change in an underlying interest rate index tied to your APR, like the prime rate.
- If you don’t make your required payment within the 60 days after your due date.
And, if your APR does go up for one of those reasons, the CARD Act requires creditors to consider reducing your APR in the future if those factors change. For example, if your rate is increased because you were more than 60 days late, you can get your old rate reinstated if you make the minimum payment on time for six consecutive months after the increase.
The Credit CARD Act restricted the fees that credit issuers can charge you. For example, card companies can’t charge you over-limit fees unless you opt into a program allowing charges that go over your limit. If you choose not to participate, a transaction that would go over your card’s limit should be declined — but you also shouldn’t be charged any additional over-the-limit fees. Also, if you pay late, credit card companies are allowed to charge you only “reasonable and proportional” late fees. That may not sound like much, but by 2014 it had helped reduce the average late fee charge by 20%, according to the CFPB.
You may be surprised to know that the CARD Act also regulates gift cards. Did you know that card companies can charge what’s called a dormancy fee if your gift card or general prepaid card is inactive or drops below a certain available balance? Thanks to the CARD Act, card issuers can now do this only if you haven’t used the gift card within the last 12 months, and they can only charge you once a month as long as they conspicuously disclose the dormancy fee. Gift cards are also required to last at least five years before expiring, to give you a fair shot at using the cash first……Read More>>