Credit Card Accountability, Responsibility, and Disclosure Act of 2009

The Law Passed to Protect Credit Card Consumers

Mustachioed man making online credit card purchase
••• Hero Images/Getty Images

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 was signed into law by President Barack Obama on May 22, 2009. The credit card law known as the CARD Act made significant changes to existing credit card law and created new protections for credit card users.

The CARD Act made significant changes to existing credit card law including regulations on interest rate increases, billing statements, over-limit charges, and payment due dates. While most parts of the CARD Act did not go into effect until February 22, 2010, some of the law became effective as early as August 20, 2009. Here is an overview of some of the most significant changes that came with the 2009 act.

Advance Notice of Interest Rate

Starting August 20, 2009, credit card issuers are now required to send at least 45-day written advance notice of interest rate increase or other significant credit card changes. Those other significant changes include increases in any fee or finance charge. Credit cardholders must be notified of their right to reject, or opt-out of, the changes. While the law required credit card companies to provide advance notice of interest rate increases, the act does not require advance notices of minimum payment increases.

No Penalty for Opting-Out

If you decide to opt-out of the credit card changes and close your credit card account, your card issuer can't charge extra fees because you closed your account, default your account, or require you to pay the balance in full immediately. Your credit card issuer can: increase your monthly payment by up to 100% (double it), require you to repay your balance within five years, or they can leave your repayment plan the same.

No Rate Increases on Existing Balances

Credit card issuers cannot raise your interest rate on existing balances (no retroactive interest rate increases), except in certain situations.

Limits on Interest Rate Increases

Credit card issuers can't increase interest rates on existing balances except in certain situations:

  • A promotional interest rate has expired. The credit card issuer must have notified you before the start of the promotional rate how long the promotional rate would last and what the interest rate would be when the promotional rate expired. Promotional rates must last at least six months.
  • Your credit card has a variable interest rate that the credit card issuer doesn't control and can be easily viewed by the general public.
  • You finished a hardship program or had a hardship program canceled. The increased interest rate can't be higher than what it was before you started the program. Additionally, you must have been notified before the start of the program what the interest rate would be if the program was completed or canceled.
  • You were more than 60 days late on your minimum credit card payment. If your interest rate increases because of late payments, you should receive a notice when the interest rate increases letting you know why the rate increased. If you make your minimum payment on time for the next six months, your card issuer is required to lower your interest rate.

No Rate Increases on New Accounts

If you open a new credit card account, your card issuer cannot raise your interest rate within the first 12 months of your account, except in the situations described above.

Rate Increases Must Be Reviewed Bi-Annually

After an interest rate has been increased, the credit card issuer must review the account every six months to determine whether the rate can be lowered. If the factors that first triggered the interest rate increase have changed, the card issuer must lower the interest rate.

Opt-In Required for Over-the-Limit Fees

Credit card issuers are required to give cardholders the opportunity to opt-in to over-the-limit fees. Unless cardholders have expressed they would like over-the-limit transactions to be processed, those transactions that would exceed the credit limit should be denied. Before opting-in, cardholders must be told the amount of the over-the-limit fee. A cardholder who has opted-in to over-the-limit fees has the right to opt-out at any time.

Limits on Over-the-Limit Fees

An over-the-limit fee can only be charged once in a billing cycle and only for a total of three consecutive billing cycles unless you pay your balance below the credit limit and go over it again or you get a credit limit increase and exceed the new limit.

Payments Must Be Processed on the Day They're Received

Any payment received by 5:00 p.m. on the due date is considered on time. Your payment due date should be the same day each month. If your payment due date falls on a holiday, weekend, or another day your card issuer doesn't accept payments, your payment can be processed on the next business day without any late payment penalty.

If a card issuer accepts payments at a local branch, any payment received at the local branch should be processed on that day.

Above-Minimum Payments Should Be Allocated Fairly

Payments above the minimum should be applied to the highest interest rate balance first, followed by the next highest interest rate, except in the case of a balance with deferred interest. If you have a balance deferred interest, the entire payment will go toward that balance in the last two billing cycles of the promotion.

No Late Fee for Card Issuer Changes

You cannot be charged a late fee if your payment was not processed because your credit card issuer made a change to its mailing address or payment processing procedures. This applies to payments received for up to 60 days after these changes became effective.

No Fee For Method of Payment

Credit card issuers cannot charge a fee based on your payment method unless you have requested an expedited payment that must be handled by a customer service representative.

You Must Be Given Time to Pay Your Bill

Your credit card issuer must mail your billing statement at least 21 days in advance of your due date. You can't be charged a late fee if your billing statement is not mailed or delivered to you at least 21 days before your credit card payment is due.

You Must Have Time to Pay Within the Grace Period

If your credit card balance has a grace period in which you can pay the balance in full and avoid a finance charge, your statement must be mailed or delivered to you at least 21 days before the finance charge would be added to your balance.

Universal Default is Banned

Universal default is a clause within your credit card agreement that allows your card issuer to raise your interest rate at any time for any reason. Credit card issuers have used this clause to apply the penalty interest rate when you've been late on a payment to another credit card. The CARD Act bans universal default.

Double Billing Cycle Finance Charges Are Banned

The double billing cycle method of calculating finance charges is illegal under the CARD Act. Credit card issuers can no longer charge interest on balances from a previous billing cycle. They also cannot charge interest on balances that have already been paid. An exception is made for finance charges on balances that were part of a billing error dispute or a finance charge charged for a returned check.

Limits on Initial Fees for Subprime Credit Cards

During its first year, any fees charged by a subprime credit card cannot exceed 25% of the credit limit. On a credit card with a $400 credit limit, total fees charged when the credit card is opened cannot be more than $100. This excludes late payment fees, over-the-limit fees, and returned check fees.

Minimum Payment Warnings Must Appear on Billing Statements

With the CARD Act, credit card issuers were required to begin disclosing the cost of making minimum-only payments. Billing statements must now include this statement (or something similar to it): "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."

The billing statement must include:

  • The number of months it would take to repay the balance if only minimum payments are made.
  • The total cost of making minimum-only payments based on the current interest rate. The billing statement must include the total amount of principal and interest paid.
  • The monthly payment required to repay the balance within 36 months along with the total interest and principal paid on a 36-month repayment plan.
  • A toll-free number you can call for information about consumer credit counseling.

This information must be displayed in a table where you can read it. It can't be hidden somewhere on the billing statement where you are unlikely to find it.

Billing Statements Must Include Late Payment Deadlines and Penalties

On credit accounts that charge a late fee for late payment, the billing statement must include the payment due date (or date the late fee will be charged) along with the amount of the late fee. If a late payment will result in an interest rate increase, that fact along with the amount of the interest rate must be listed on the billing statement. Both pieces of information must appear in a location that the cardholder can find and read them.

Disclosure Rules for "Free" Credit Reports

Any advertisement for a free credit report must disclose that Federal law allows consumers to obtain a free credit report at Television and radio ads must include the following sentence: "This is not the free credit report provided for by Federal law."

Rules on Credit Cards for Young Adults

Under the CARD ACt, credit card issuers can no longer give credit cards to any consumer under 21 unless the person has submitted a written application for the credit card. Young adults under 21 must have a co-signer to get a credit card or they must show they have means to repay the credit card balance.

Pre-screened offers for credit cannot be sent to consumers under 21.

Credit card issuers are also banned from giving free items to college students in exchange for a completed credit card application at any event that takes place on campus, near campus, or at a college-sponsored event.

In the act, Congress recommends, but does not require, that colleges require credit card companies to disclose any campus marketing events beforehand; that colleges limit the locations where credit card related marketing events take place; and that colleges provide credit and debt management education as part of new student orientation.

Rules on Gift Card and Gift Certificate Fees

Any company issuing a gift card, gift certificate, or prepaid card is not allowed to charge an inactivity fee unless the gift card has not been used for 12 months. The purchaser must be notified (before purchasing the gift card) that an inactivity fee may be assessed. The amount of the fee must be disclosed ahead of time.

Gift certificate expiration must be five years from the date of purchase or five years from the last date funds were loaded onto the certificate. If the gift card has an expiration date, it must be disclosed prior to purchase of the certificate.

These rules do not apply to reloadable phone cards, reloadable cards that are not marketed as gift cards or gift certificates, cards used in place of tickets for admission to certain events, and paper gift certificates.

Penalties for Credit Card Issuer Violations

A credit card issuer who violates the Credit CARD Act can be fined between $500 and $5,000 for each violation.