Your Rights Under the Credit Card Act

The 2009 law introduced important protections for consumers

A man uses his credit card online
••• © Select Stock / Vetta / Getty

Since 2009, American consumers have had significantly more protection from potential abuses by credit card issuers, through the Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act). You should no longer get slapped with a rate increase or a new fee with no warning. The due date for your payment can't be changed arbitrarily. If the terms change in a way you don't like, you can close the account without penalty.

Does the law work? A 2014 study by economists found that it saved American consumers $11.9 billion a year. The American Bankers Association, while acknowledging that the law had clear benefits, concluded that interest rates had increased since the law went into effect, and that lower-income borrowers had more trouble getting credit.

All of the above may be true, but every individual who uses a credit card should be familiar with the changes brought in by the CARD Act. Here is an overview of some of the most significant changes.

Advance Notice of Rate Increases

Credit card issuers are now required to send at least 45-day advance written notice of an interest rate increase or other significant change such as a higher fee or finance charge. Credit card holders must be notified of their right to reject or opt out of the changes. The law does not, however, require advance notice 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, however, increase your monthly payment by up to double, require you to repay your balance within five years, or leave your repayment plan the same.

No Rate Increases on Existing Balances

Credit card issuers cannot raise your interest rate on an existing balance, except in certain situations. Those situations include:

A promotional interest rate has expired. If you're considering a new card with a low introductory rate, check whether the fine print says the rate on any existing debt will be increased when the promotional rate expires, and what that new rate will be.

Your credit card has a variable interest rate. With this type of credit card, your rate will be based on a formula such as the prime lending rate plus a set percentage.

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. Thereafter, if you make your minimum payments on time, your card issuer is required to check every six months whether you have paid on time and might be eligible for a lower 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, except in the situations described above.

Rate Increases Must Be Reviewed Biannually

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 indicated they would like over-the-limit transactions to be processed, those transactions that 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 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 any other 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 must be processed on that day.

Above-Minimum Payments Should Be Applied Fairly

Payments above the minimum should be applied to the highest interest rate balance first, followed by the next highest interest rate balance, except in the case of a balance with deferred interest. If you have a deferred interest balance, 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 you're given less time.

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 was a clause in credit card agreements that allowed the card issuer to raise your interest rate at any time for any reason. For example, some issuers used this clause to apply the penalty rate when its customers were late on a payment to another credit card. The CARD Act bans this practice.

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.

Initial Fees for Subprime Credit Cards Limited

During its first year, any fees charged by a subprime credit card cannot exceed 25 percent 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 are required to disclose the total cost to you of making minimum-only payments. Your bill must clearly show:

  • The number of months it would take to repay the balance if only minimum payments are made each month
  • The total cost of making minimum-only payments based on the current interest rate
  • The monthly payment required to repay the balance within 36 months, along with the total interest and principal you would pay over that time
  • A toll-free number you can call for information about consumer credit counseling

Billing Statements Must Include Deadlines and Penalties

On credit accounts that charge a late fee, the billing statement must include the payment due date along with the amount of any 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.

Disclosure Rules for "Free" Credit Reports

Any advertisement for a free credit report must disclose that federal law entitles consumers to obtain a free credit report at AnnualCreditReport.com. This part of the law gives you a good way to stay on top of your credit rating and make sure errors don't creep in.

Television and radio ads must include the following sentence: "This is not the free credit report provided for by federal law." That indicates the advertised product offers other or additional services for a fee.    

Rules on Credit Cards for Young Adults

Credit card issuers can no longer grant credit cards to consumers under age 21 unless the person has submitted a written application. Young consumers also must have a co-signer to get a credit card or show they have means to repay the debt.

Prescreened offers for credit cannot be sent to consumers under 21.

Credit card issuers also are banned from giving freebies to college students in exchange for a completed credit card application at any event that is college-sponsored or on campus.

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 can 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.

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.

A credit card issuer in violation of the CARD Act can be fined $500 to $5,000 for each violation.