Credit CARD Act of 2009 – Overview and Summary of Provisions

  • By: Staff Editor
  • Date: October 14, 2011
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Following the recession of 2007-10, US legislators introduced a draft of financial laws aimed at trying to control spiraling, unregulated activities by financial institutions that were harming consumers. The Credit Card Accountability Responsibility and Disclosure Act or Credit CARD Act of 2009 was part of the new regulations and was enacted into law by President Obama. The aim of the Act is stated to be to “amend the Truth in Lending Act to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan.” It was intended to comprehensively reform how credit card companies charge card holders. 

The Credit CARD Act contains various measures to protect the rights of the consumer from hidden charges imposed by credit companies. The Act, however, does not set any regulatory limits on pricing, rates or fees.
Summary of provisions
Consumer Protection
The Credit CARD Act includes the following regulatory changes that protect the rights of cardholders:
  • Creditors have to provide a notice to the cardholder 45 days prior to:
    • Increasing the Annual Percentage Rate or APR
    • Any significant changes to the cardholder agreement. This includes increase in fees or finance charges
  • Creditors cannot increase the APR of interest, fees, or finance charge on the existing balance on an open end consumer credit card account until certain conditions are met
  • Creditors can increase the APR, fee or finance charge only if:
    • They communicate the expiration of a time period such as a promotion period before the start of this time period
    • There is a change in index that the creditor can’t control
    • Payment is not received during the 30-day grace period after the due date or
    • A workout or temporary hardship arrangement is completed or the cardholder has not complied with this arrangement
  • Creditors cannot penalize on-time payments
  • Creditors cannot charge interest on debt that is paid during the grace period, preventing “double-billing”
  • Over the limit fees can only be applied once during a billing cycle
  • Creditors cannot charge fees on the payment method unless the method requires expedited service
  • Creditors cannot use the terms “fixed” in a deceptive or misleading way
  • The payment due date should be established and should be the same day for each month
  • Periodic statement for due payment should be sent at least 21 days prior to the due date
  • Creditors have to take into consideration the ability of a credit card applicant to make the required payments before issuing a credit card
Enhanced consumer disclosures
The Credit CARD Act includes the following requirements that enhance disclosures that protect consumers:
  • The requirements for mandatory minimum payment disclosures that a creditor must furnish has been increased
  • Requirements relating to late payment have been revised
  • If a creditor has changed or amended any terms regarding a card agreement, it has to communicate the same to the cardholder by a certain deadline
  • Creditors have to publish their credit card agreements  on their website
The Credit CARD Act also amends the Fair Credit Reporting Act to require that any advertisement offering free credit reports should also prominently say that “free credit reports are available under federal law at (or other authorized source).”
Protecting young consumers
The Credit CARD Act has strict provisions regarding the sale of credit cards to any individual below the age of 21. In such cases, the following conditions apply:
  • Creditors cannot be issued to individuals below the age of 21 unless the application is signed by a cosigner who is a an adult (parent, legal guardian, spouse)
  • Credit lines can only be increased with the joint approval of the cosigner
  • Higher education institutes that join credit card companies in marketing cards have to publicly disclose such information
  • Creditors are prohibited from offering inducements to take up credit cards to college or university students on or near the campus or during an event sponsored by the institution
  • Creditors have to submit annual reports to the Federal Reserve Board that discloses “terms and conditions of all business, marketing, and promotional agreements and college affinity card agreements with an institution of higher education, or with an affiliated or related alumni organization or foundation, with respect to any college student credit card issued to a college student at such institution.”
Regulatory requirements for gift cards
The Credit CARD Act amends the Electronic Funds Transfer Act, making it illegal to:
  • Impose a dormancy fee, an inactivity charge or fee, or a service fee on a gift certificate, store gift card, or general-use prepaid card
  • Sell or issue a gift certificate, store gift card, or general-use prepaid card that is subject to an expiration date.
Additional Resources
Read the Credit CARD Act of 2009 in full


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