In response to growing concerns about potential abuses within the credit card industry, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (also known as the Credit CARD Act), which ushered in a number of new rules providing a variety of protections for credit card holders and applicants.
Protections Offered by the Credit CARD Act
Consumers shopping for credit cards and existing cardholders may be interested in a number of key changes instituted by the CARD Act. The new laws provide a number of protections for consumers, primarily in the areas of interest charges and credit card fees, as well as interest rate increases. Here is a brief breakdown of many portions of the law.
Annual Percentage Rate (APR) Increases
Credit card issuers are not allowed to raise APR's on existing balances within 1 year of an account being opened with four exceptions:
1) A bank disclosed that they would raise the APR earlier, when the account was opened;
2) the APR is increased due to a change in one of the "indexes" beyond the issuer's control;
3) a consumer fails to abide by a "workout" arrangement with the issuer (workouts are sometimes offered to consumers struggling with payments, temporarily giving them a lower APR or similar benefit);
4) the credit card holder fails to make required minimum payments within 60 days.
After 1 year from when the account was opened, credit card companies are allowed to raise APR's. However, the increased APR will apply only to new transactions and the new rate must have previously been disclosed to the consumer.
Notice and Disclosure Requirement
The CARD Act also implemented new and improved notice requirements for issuers, plus a few key required disclosures:
The CARD Act has also established new and increased protections for consumers to receive monthly statements. Under the new rules, a payment can't be considered late unless the statement was mailed or delivered to the customer at least 21 days prior to the due date.
Handling of Payments
Credit card companies are now required to abide by certain rules regarding how to handle payments made on an account. One of the most important changes is that for customers who have multiple APR's applying to different types of debt (for example, balance transfers and cash withdrawals) credit card companies must now apply those consumers' payments to debt in the order of highest APR first. No longer can companies apply payments to debts with lower APR, while leaving debts with higher APR to accrue interest charges.
Double or two-cycle billing is now prohibited. Double-cycle billing occurs during the calculation of interest charges for a month. The issuer would include the current balance on the credit card but also add the average daily balance from the previous billing period, regardless of whether some of the previous balance was paid.
The practice whereby creditors raise consumers' interest rates based on their payment records with other creditors has been cut back, if not eliminated altogether. Credit card companies are no longer allowed to raise interest rates on existing balances based in this manner, and can only raise the APR on future balances if they give 45 days' notice.
Get Legal Help with Your Questions About Credit Card Rules and the CARD Act
Above are many, but not all, of the protections offered by the sweeping provisions of the Credit CARD Act. If you're concerned about your credit card issuer's practices, the terms of your cardholder agreement, or have other concerns related to debt in general, you may want to contact a local bankruptcy attorney for assistance.