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The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 represents what is arguably the biggest attempt in history to overhaul credit card industry regulations.
Former president Barack Obama signed the Credit Card Act in May 2009. At that time, some of the rules went into immediate effect, others kicked in three months later and all of them were in full force by February 2010. These regulations included things such as how your monthly statement is formatted to improve transparency and restricting some of the ways a card company makes decisions regarding your card’s interest rate. But there is also a lot more to the Credit Card Act than meets the eye — and much of it can potentially have a direct impact on your finances.
In this article:
- How the Credit Card Act of 2009 protects consumers
- What the CARD Act doesn’t cover
- The background story
- Where we go from here
The law is a decade old now, but its regulations are as important today as they were 10 years ago — especially as consumers debate whether or not its guidelines go far enough. That’s why it’s worth knowing just how the CARD Act protects you.
How the Credit Card Act of 2009 protects consumers
The CARD Act is sometimes called the Credit Cardholders’ Bill of Rights, and for good reason. The law is packed with protections designed to prevent cardholder abuse by issuers.
“Overall, [the CARD Act] brought about maybe the biggest regulatory change in the history of the credit card business,” said Matt Schulz, chief industry analyst at CompareCards.
The act’s regulations come in all shapes and sizes, but here are some of the most noteworthy protections:
- Credit card companies cannot randomly increase your card’s interest rates — unless you’ve agreed to a variable or adjustable rate or have managed to fall at least 60 days behind on your payments. (Note: after the Card Act, most issuers switched all their cards to variable rate APRs, whose rates typically rise in tandem with Fed rate increases.) If your rate does get hiked because you failed to pay on time, you can get your original, lower rate reinstated by making on-time payments for the next six months.
- Any payment amount you make above your monthly minimum requirement will be applied to the balances that carry the highest interest rate if you carry multiple-rate balances on your card (such as a cash advance balance as well as any regular balance). This way, banks are required to help you pay off your debts as efficiently as possible.
- Credit card statements also must display a breakdown of how long it would take to pay off your current balance if you only made the minimum payment.
- Card companies cannot charge over-limit fees unless you have specifically opted into the ability to go over your credit limit. Otherwise, your card will just get declined if your charges exceed your credit limit.
- Lastly, if the terms of your card agreement are going to change, your bank has to notify you 45 days ahead of time. There are also limits on how many fees you can be charged, as well as restrictions on how your interest rate is calculated.
The CARD Act also contains protections for students and young adults. For example, card companies are prohibited from offering giveaways on college campuses or sending unsolicited mailing offers to people under the age of 21.
The law also restricts people under the age of 21 from obtaining their own card. Young consumers must have an adult cosigner in order to apply for a credit card, or they must be at least 18 and have a steady income source. The laws, however, do not prevent an adult from adding a young adult as an authorized user to their card.
To learn about even more of the CARD Act’s protections, check out this list.
What the CARD Act doesn’t cover
The Credit Card Act has plenty of strengths, but it’s also got some weaknesses. The law’s “biggest hole,” according to Schulz, is its failure to place any sort of cap on interest rates.
The act does place restrictions on when and how banks can adjust interest rates on existing card accounts, but it doesn’t stop them from hiking APRs as high as they want on new accounts.
Competition between card companies keeps those rates from spiking too dramatically, but there have been some noticeable increases. For example, the average interest rate for new credit card offers is currently 16.91%, according to the Federal Reserve. In May 2014, the average rate was 12.74%.
Another weak point in the law is the lack of protections against credit limit reductions. Banks remain free to reduce your credit limit without notice, and they can close your account unexpectedly, without needing to provide notice.
Additionally, the CARD Act only applies to consumer cards, meaning business accounts don’t have the same protections. This especially hurts small business owners, many of whom apply for business credit cards as a way of separating their personal and professional finances.
The background story
So why was the CARD Act passed in the first place? According to the law itself, it was enacted in order to “establish fair and transparent practices related to the extension of credit.”
“Basically, the idea was to get rid of some credit card practices that were seen as not particularly consumer-friendly, and also to bring a little bit more clarity to how payments and disclosures are handled,” Schulz said.
The original bill was sponsored by Rep. Carolyn B. Maloney (D-NY) and was supported widely throughout Congress, passing 357-70 in the House and 90-5 in the Senate.
At first the law’s implementation was handled by the Board of Governors of the Federal Reserve System, until the Consumer Financial Protection Bureau (CFPB) took over in 2011.
The CFPB used the CARD Act to punish banks who overcharged or misled their customers. For example, in 2012, the bureau forced Capital One to pay $140 million in refunds because the company used deceptive marketing tactics to trick customers paying for “add-on” products.
Another major case came in 2018, when the CFPB required Citibank to pay $335 million in restitution after the company failed to evaluate and reduce APRs to a level in line with regulatory requirements.
Where we go from here
But some members of Congress think the act should go further. Sen. Bernie Sanders (I-VT) and Rep. Alexandria Ocasio-Cortez (D-NY) called for increased consumer protections earlier this year by suggesting changes that would further regulate the credit card industry.
The bill, known as the Loan Shark Prevention Act, was introduced in May, and would impose a 15% limit on credit card interest rates, and encourage state governments to establish even lower limits.
Schulz said this legislation is essentially “dead on arrival,” but noted that more regulations may be on the way soon — depending on the outcome of next year’s elections.
“It will be interesting to see — depending on how the 2020 elections go — if a Credit Card Act 2.0 is something that ends up getting discussed more,” Schulz said.
There’s no telling if the CARD Act will change going forward, but for now, it’s important to understand exactly how the law protects you. That way, you can stay on the lookout for shady practices and ensure you’re getting the most out of your credit card company.