By now, most of us have already noticed that our credit card statements have taken on a more reader friendly look than they have in prior years. Information such as when payments are due, the amount owed, the consequences of making late payments and how much we are paying in fees and interest on different types of accounts are now easier to find. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 was passed by Congress with the intent to protect credit card users from unfair rate hikes and hidden fees. The bulk of this new Act has already taken effect, but the final phase came into force on August 22, 2010.
Here is a breakdown of some of the most important provisions of the law:
- Credit card statements must clearly disclose the following:
- How long it would take to pay off a credit card balance if the cardholder makes only the minimum payment each month.
- The total cost in interest and principal payments if a cardholder makes only the minimum payment each month.
- The late payment deadline and postmark date.
- Credit card companies must give the consumer advance notice of forty-five days prior to significant changes to credit card terms. This includes change of interest rates and the benefits/rewards structure of a credit card.
- Bills must be sent out no later than twenty-one days before the due date.
- Retroactive interest rate increases are banned except when a cardholder is more than sixty days late paying a credit card bill.
- The interest rate cannot be increased within the first twelve months and promotional rates must have a minimum of six months in duration.
- The practice of double-cycle billing is no longer allowed. This is a practice by which credit card companies would use their customers' average daily balance from the current and previous month to calculate finance charges.
- Over credit limit fees are prohibited unless consumers specifically agree to allow the transaction to go through instead of being denied.
- Payments must be considered on-time if the payment is received by 5 p.m. on the due date.
- Credit cards cannot be issued to people under the age of twenty-one unless they have an adult co-signer or show proof that they have the means to repay the debt.
The newest provisions that recently took effect on August 22, 2010 cover the following:
- Credit card companies can no longer charge more than $25 for late payments except in extreme circumstances. A consumer may be charged more than $25 if the credit card company can show a pattern of repeated violations or if a card issuer can show that a higher fee reasonably offsets its own costs in dealing with the violation that spurred the penalty.
- Customers may not be charged for not using their cards.
- Penalty fees cannot exceed the dollar amount incurred by the consumer’s violation that spurred the fee. For example, if a customer is late making a $10 minimum payment, the fee can’t exceed $10. Or, if a customer spends $5 over his or her credit limit, the credit card company may not charge more than $5 as a penalty fee.
- Credit card companies may only charge one fee per infraction.
- If a credit card company increases the Annual Percentage Rate (APR), it must explain to the customer why.
- The credit card company must review the cardholder’s account six months after increasing the interest rate, and return the APR to the previous lower level if the cardholder has been on-time with payment.
These provisions were enacted to put a stop to unfair and deceptive credit card practices, but consumers must also analyze their own financial habits to make sure that they are not building up a credit card balance by paying off their monthly credit card balances and spending only what they can afford.
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