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10 Years Later: 10 Credit Card Protections Under the CARD Act

10 Years Later: 10 Credit Card Protections Under the CARD Act

*Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated Mar 05, 2019. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.

Get the champagne out — a major anniversary is coming up for credit cards.

On May 22, the Credit Card Accountability, Responsibility and Disclosure Act — more commonly known as the CARD Act — will be celebrating its 10th anniversary. Initially signed into law by President Barack Obama in 2009, the CARD Act was a major win for consumers. It regulated how credit card issuers set rates, fees and terms for cards — increasing consumer protections.

But while the CARD Act overhauled credit card industry regulations, most Americans (79%) think that there should be more laws and regulations put in place to protect consumers, according to a survey by CompareCards.

“The CARD Act did not institute a cap on credit card rates. A separate federal law prohibits credit unions from charging more than an 18 percent APR on the credit cards they issue, but no such restriction exists for banks and other financial institutions,” said CompareCards.com Chief Industry Analyst Matt Schulz.

A new CompareCards survey found that the majority of Americans (88%) support a cap on credit card APRs. While credit card interest rates won’t be capped any time soon, there’s always a chance it can happen in the future. After all, the regulations passed in the CARD Act seemed like a long shot a decade ago, but are now in full-force.

Beware: The CARD Act sets regulations for consumer cards, not business cards.

In honor of the CARD Act’s 10-year anniversary, here are 10 important consumer protections initiated by the legislation:

1. Clear payment due dates and times

The CARD Act set several rulings on how issuers set payment due dates and when payments are considered on-time. Card issuers are required to make the due date the same day each month. If a bill is due on a weekend or holiday that the creditor doesn’t accept mail, and mail payments are the only available option (which is very rare), any mail payments received the following business day aren’t allowed to be marked late. Card issuers also need to provide cardholders at least 21 days to pay off a balance without interest charges (aka a grace period).

2. Clarity on the impact of making only minimum payments

Card issuers are required to disclose the repercussions of making only the minimum payment on your bill, which includes how many months it will take to pay off your balance and the amount of interest you’d incur. In addition, the CARD Act states creditors need to include the following on bills, or something similar: “Minimum Payment Warning: Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance.”

3. Payments applied to higher interest balances first

Payments above the minimum due each month will be applied to the balances that carry the highest rates of interest if a cardholder has more than one outstanding balance (for example, a regular revolving balance and a cash advance balance). In the past, card issuers could apply these payments to the lower interest rate balances, meaning you’d be charged more in interest and have a harder time getting out of debt.

4. Late fee caps

The CARD Act initially limited credit card late fees to a maximum of $25 for the first instance and $35 for additional instances within six billing cycles. Late fees tend to change each year, due to the Consumer Financial Protection Bureau’s inflation adjustments, which typically result in $1 fluctuations. Effective Jan. 1, 2019, late fee limits increased to $28 and $39, respectively.

5. Eliminated no-reason APR hikes; ability to restore penalty APRs

Card issuers can’t simply increase your APR for no reason. There are limited circumstances where your APR can be increased, such as if you have a variable rate APR and the prime rate increases, or if an introductory APR period expires. Creditors must also give a 45-day notice prior to increasing interest rates, as well as other fees and finance charges. Just know, this warning doesn’t apply to penalty APRs, which can be assessed due to a late payment. However, there’s an additional layer of protection that limits creditors from charging penalty APRs indefinitely — if you pay late, but then make six consecutive on-time payments, your APR must be reset to your initial interest rate.

6. Option to opt-out of rate and fee increases, and close account

If there are certain significant changes to a cardholder’s account, such as an increased interest rate that a cardholder prefers not to incur, they can opt out. This means the account will be closed and any unpaid balances will be due in a reasonable time frame — no sooner than five years from the effective date of the increase.

7. Limitations for applicants under 21

Card issuers aren’t allowed to issue cards to applicants under 21 — unless they can show proof of income or apply with a co-signer. Creditors are also banned from setting up booths on college campuses and offering free t-shirts and other tangible incentives to applicants. If a college student co-signs an application with a parent or guardian and requests a credit limit increase, the creditor is not permitted to raise the credit limit unless the co-signer sends written approval.

8. No double-cycle billing

Any finance charges you may incur, such as interest, are required to be calculated only from the average daily balance of the current billing cycle. Prior to this ruling, creditors could calculate interest charges using both the average daily balance of the current billing cycle and the average daily balance of the prior billing cycle, which could lead to increased interest charges for cardholders.

9. Restrictions on first-year fees for subprime cards

Subprime cards are typically laden with high fees and interest rates, but the CARD Act capped the amount of fees charged in the first year of account opening to a maximum of 25% of the cardholder’s credit limit. For example, if you receive a subprime card with a $300 credit limit, the upfront fees can’t exceed $75. However, some subprime lenders, such as First Premier, have found a go-around for this by charging application or program fees that are paid before your account can be opened.

10. Opt-in required for over-the-limit transactions to be approved

Prior to the CARD Act, if you made a transaction that exceeded your credit limit, your card issuer would approve the transaction and hit you with a hefty fee. Once new regulations took affect, card issuers were required to reject over-the-limit transactions unless the cardholder elected to permit these transactions. In addition, the law states, “[the fee] shall be reasonable and proportional to such omission or violation,” which means the fee won’t exceed the over-limit amount.

Bottom line

The CARD Act of 2009 set some much-needed regulations for credit cards, but remember that it doesn’t cover everything. Banks and other financial institutions aren’t subject to an interest rate cap, and business credit cards aren’t covered by the laws mentioned here. There’s still room for improvement, but the CARD Act set a range of consumer protections that provided welcome relief.

*This post contains links to MagnifyMoney, an affiliate of LendingTree.

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