U.S. Credit Card Holders Bill Of Rights
In 2008, amidst the U.S. economic meltdown, a group of organizations in and around the government decided it was time to further regulate credit card issuers and protect citizens from what many considered predatory practices. The National Credit Union Administration and the Federal Reserve Board put together a set of rules that would hopefully prevent at least some consumers from self-destructing on credit in the future.
Although these rules never made it through the Senate, in 2009 they were reintroduced as the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD). This bill passed both houses of Congress and was signed into law by President Obama in May of 2009. This law is considered by many to be the most significant credit card legislation since the original Truth in Lending Act of 1968, of which the new law is now a part of.
Most credit card holders have no idea what they agreed too when they signed the contract to accept credit from their issuer of choice. This is unfortunate, but the fault may lie on both the consumer and the issuer as the contract reads like some ancient script in a dead language that few can actually push through. This does not absolve the card holder from responsibility however, as they should have educated themselves on what the contract held before agreeing to it. Not an easy job to say the least. Among the labyrinthine rules and disclosures contained in the credit application and agreement were some fantastic clauses that gave the issuer the ability to raise your interest rate at any time for any reason, to raise or lower your balance at any time, and Universal Default which is a crazy idea to be covered in a moment.
With the above in mind, here is a simplified view of what the Credit CARD Act of 2009 actually does:
Prevents Unfair Increases In Interest Rates & Changes In Terms
This is a fairly general statement that handles many “problem areas” people were having with credit cards, including the application of Universal Default which was one of the most deceptive practices used by creditors. The Universal Default clause would allow the creditor to place a card holder into a state of default, as if they had not paid their bill, if the consumer defaulted on any other agreement including a mortgage, energy bill, phone bill, a credit card from another provider, and more. Universal Default is no longer valid, and creditors are limited in their ability to raise rates. Creditors may not raise interest rates on a cardholder within the first year after an account is opened for any reason, and all promotional rates must last at least 6 months.
Prohibits Exorbitant & Unnecessary Fees
Regulating the many fees a cardholder can incur will go a long way in helping consumers stay within their limit. No longer will issuers be able to charge a fee to pay a credit debt. This sounds strange, but many creditors were charging consumers a processing fee for paying their bills. You had to pay to pay. Over-limit fees are now prohibited unless the cardholder agrees to them specifically, and even then the fees are limited. All penalty fees must now be commensurate with the omission or violation as well. This means that you can’t be charged $100.00 for going over your limit by $5.00.
Requires Fairness in Application and Timing of Card Payments
Most consumers might not know that if they paid more than the minimum payment on a monthly bill, the creditor could decide how much of the payment goes towards the balance and how much would be applied to the interest. Now, all payment that exceed the minimum amount due are applied to the balance of the card. This is huge as it is a strong step in helping consumers dig their way out of debt. Issuers are now prohibited from setting early morning payment deadlines, and must issue a statement 21 days in advance of the payment due.
Protects the Rights of Financially Responsible Credit Card Users
Double-cycle billing is now banned from use by credit card companies. Double-cycle billing was a tricky way creditors could apply finance charges on a paid balance. This method adds any unpaid balance from the previous month to the current month to find an average daily balance to apply interest too. In the past this would allow more interest to be charged to consumers that only occasionally carried a balance.
Creditors may no longer charge a fee for late payment if it is the creditor that caused it to be late. That’s right, in the past if an issuer delayed a payment for some reason, technical or otherwise, they could charge a late payment fee. Payments made at local branches are now required to be considered same-day payments as well.
Provides Enhanced Disclosures Of Card Terms & Conditions
Credit card issuers may no longer change the terms of a contract without first notifying the cardholder 45 days in advance. Any changes made at the renewal of a contract must also be disclosed before the credit account may continue as well. Another interesting addition is that credit card statements must include a time frame it will take the card holder to pay off a balance if only the minimum amount is paid.
Strengthens Oversight Of Credit Card Industry Practices
All credit card agreements must now be made available on the internet and made available to the Federal Reserve Board to post on their site as well. The Federal Reserve Board is required to review all credit card agreements and the FTC will now attempt to prevent deceptive marketing of free credit reports.
Promotes Financial Literacy
The new law states that it requires comprehensive study of existing financial literacy programs, as well as the development of new ones. Although it is not clear what body is responsible for this, it will probably fall to the Federal Reserve Board to champion this cause. Please check our Credit Card Articles for more information on financial literacy, including our article on Financial Education For Children.
This is only a high level look at the Credit CARD Act of 2009, and there are many other interesting and important details to understand and consider. To read the entire credit card holders bill of rights, click here to go to The Library of Congress.
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