Though not a household name, the Credit CARD Act of 2009 is a major force in the finance and consumer protection space.
Born out of the turbulent times of the 2008 financial crisis, it came to the rescue with a bunch of new safety nets for consumers. Among the standout features, it reins in credit card companies, stopping them from cranking up fees and interest rates on a whim.
But, it’s fair to wonder: are these safety nets wide and sturdy enough? And what about sellers? Does this law throw them a lifeline, too?
What is the Credit CARD Act of 2009?
The Credit Card Accountability Responsibility and Disclosure Act of 2009, known more casually as the Credit CARD Act, is like a superhero of consumer protection, leaping into action after the 2008 financial crisis.
Congress green-lit the Credit CARD Act during the darkest days of the Great Recession. Building on the foundation of existing laws like the Truth in Lending Act of 1968, this law turned the spotlight on the fine print of credit card terms and conditions, making them easier to decipher. It also firmly capped certain fees and interest charges that banks could spring on cardholders.
Here’s what the law does in a nutshell:
- It gets rid of shadowy billing verbiage and potentially harmful business maneuvers.
- It controls when and how credit card companies can boost interest rates and fees.
- It ensures that credit card fine print isn’t brain-busting, helping folks make sense of the terms and conditions.
- It keeps an eye on how credit card companies interact with youngsters and young adults, shielding them from predatory lending tactics.
Why Was the Credit CARD Act Adopted?
The Great Recession was a loud wake-up call. It shouted out the need for bolstered consumer protections to anchor the stability of American finance.
In the pre-reform era, credit card agreements often buried key details in a jumble of jargon. There was a hodgepodge of formats between card issuers, making offer comparisons a herculean task. Even worse, banks could spike interest rates on future purchases and current balances with zero forewarning.
With the Credit CARD Act, these dodgy practices were kicked to the curb, creating a safer space for consumers and bolstering the overall financial environment. Drawing from the well of the Truth in Lending Act, the Credit CARD Act of 2009 strove to rejuvenate faith in financial institutions. It’s been a beacon of clarity and transparency, illuminating everything from the initial card agreements to monthly statements while making terms, penalties, and fees far less perplexing.
To ensure the marketplace played by these new rules, the Act also mandated the creation of a new watchdog group, the Consumer Financial Protection Bureau. The CFPB remains dedicated to shielding consumers from unfair tactics.
Protections Under the Credit CARD Act
The Credit CARD Act says that credit card companies must let an account age like fine wine for at least a year before they can hike the interest rates. They also have to send a heads-up to the cardholder 45 days before any rate bump, giving the cardholder a chance to say “no thanks” before the increase hits.
It also ensures that cardholders won’t be hit with interest on anything beyond their latest billing cycle. This was a trick that was once a favorite of many banks, but it is no longer allowed.
Here’s a quick rundown of the key shields that the Credit CARD Act of 2009 gives cardholders:
A “Get-Out-Of-Debt-Gracefully” Card
If a cardholder decides to pull the plug, the company has to provide a five-year grace period to pay off any outstanding balance at the old interest rate. However, the minimum payments might creep up, potentially doubling the previous minimum monthly payment.
No More “Double-Cycle” Billing
Once upon a time, card companies could calculate interest based on the last two billing cycles. Basically, they could bill you interest on the money you’d already paid off. The Act put a stop to this double-cycle billing.
The Act also added some safety features for young adults getting their first credit card. The minimum age to open a card without a co-signer is now 21, unless the young adult can show they’re financially independent.
The CARD Act puts a leash on what, how, and how much card companies can charge in fees. The rule of thumb is that fees have to be “reasonable and proportional.” This applies to everything from activation and annual fees to late and over-limit fees.
Rate Rise Restrictions
As we’ve already mentioned, the Act puts brakes on rate hikes from banks. They have to wait at least a year before raising interest rates on a new cardholder. They also have to give a 45-day heads up before any increase, reminding customers that they can opt out before the new rates kick in.
Whether the cardholder responds to the notice or not, any changes to the annual percentage rate (APR) can only come into effect 14 days after the warning. Plus, they can only apply to purchases made after the current billing cycle.
What Does the Credit CARD Act Not Cover?
While the Credit CARD Act of 2009 brought about a wave of crucial protections for consumers, it doesn’t encompass all aspects of credit card usage. Notable areas that fall outside the scope of the law include:
Interest Rate Cap
The Credit CARD Act doesn’t impose a cap on the interest rates that credit card companies can charge. Although it restricts rate increases in certain scenarios, credit card issuers can set the initial rate as high as they want.
Business Credit Cards
The Act primarily focuses on personal credit cards. Protections don’t usually extend to business or commercial credit cards.
While the Act restricts certain fees like over-the-limit fees, it doesn’t cap all fees. For instance, it doesn’t limit the amount a company can charge for cash advances or foreign transaction fees.
Credit Limit Reductions
Credit card issuers are still allowed to reduce a customer’s credit limit without any advance notice as long as the reduction doesn’t result in an over-the-limit fee.
While the Act requires that “teaser rates” must last at least six months, it doesn’t limit how much the rate can increase after that period.
Deferred Interest Products
The Act does not prohibit deferred interest promotions often seen on store credit cards, where interest is waived for a certain period but can be retroactively applied if the balance is not paid in full by the end of the promotional period.
Debit & Prepaid Cards
The protections of the Act generally do not extend to debit or prepaid cards.
Be Attentive. Keep Yourself Safe.
Remember that this list isn’t exhaustive. Aso, credit card terms and conditions can vary widely. Always read the fine print when signing up for a new credit card.
The Credit CARD Act offers substantial safeguards for you, the consumer. However, it’s essential that you take the initiative, delve into your rights, and boldly challenge any infringements you think may have occurred.
In short: championing yourself is key.