Signed into law by President Obama on May 22nd, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 marks a significant turning point for America's credit card industry. Consumer activists claim the new law will finally afford Americans the reliable protections they deserve, while major credit issuers argue the new rules will only further limit the availability of credit at a time when it's perhaps needed more than ever before.
Regardless of what the future may hold, we believe it's important for every American to acquire at least a basic understanding of what we like to call the "Nuggets" of the Credit CARD Act of 2009. If you've got a lot of time on your hands and are prepared to read the CARD Act from font to back, go right ahead and check out the Library of Congress' website to view the complete text in all its glory.
Otherwise, take a few minutes to browse through our 5 Nuggets below for a summary of what the newly minted law means to you - in plain English. We promise our summary will be a much less painful reading experience.
Nugget #1 - New Rules May Take Effect 12/1
Most of the changes were originally set to take effect in February 2010; however, the House of Representatives recently passed a bill that would move the effective date up several months to December 1. Either way, beginning August 20th 2009, credit issuers must already provide you with the following:
- 21 days, instead of 14, to pay your bill after the statement has been delivered
- 45 days' advance notice of significant account changes (interest rates, fees, reward programs)
- The chance to opt out of interest rate hikes and increases in fees or other charges
Nugget #2 - Better Disclosure
Ever wonder how much it would cost in interest to pay off your credit card balance by only making the monthly minimum payments? Well, you won't have to do the math yourself anymore. New disclosure rules require creditors to not only indicate how long it would take to pay off your entire credit card balance, but also the total cost in interest and principal payments. The hope is that such a big number will scare more consumers into tackling their debts before they grow too large.
In addition, the required postmark date and late payment deadline must be clearly disclosed to cardholders. No more hiding important deadlines deep in the fine print.
Nugget #3 - Limits on Interest Rates, Terms & Fees
Much to the dismay of consumer activists, the CARD Act does NOT place caps on interest rates. Credit issuers can still charge whatever rate they choose. However, the following changes are certainly a huge leap in the right direction for consumers:
- Promotional interest rates must stay in effect for at least 6 months
- Interest rates cannot be increased within the first 12 months
- Unless you're more than 60 days late, retroactive interest rate increases are banned
- If you're interest rate is increased due to delinquency, the credit issuer must review your account after 6 months and return to the previous lower APR if all your payments have been on-time
- No more over-the-limit fees unless you want to be allowed to make charges in excess of your credit limit
- Double-Cycle Billing (calculating finance charges using the average daily balance for current and previous billing cycles) and Universal Default (hiking rates when a late payment is made on any other account) have seen their last day
Nugget #4 - Credit Restrictions for Young Adults
Credit will become much more difficult to obtain for those under 21. In fact, the new rules essentially ban credit cards for people under the age of 21 unless they have adult cosigners or can prove they have sufficient income to support the level of credit given.
In addition, credit issuers are banned from sending pre-screened credit card offers to anyone under 21 and offering "freebies" in return for credit card applications at college-sponsored events. Sorry students, but no more free pizza for credit card sign-ups!
Nugget #5 - Gift Cards Get Friendlier
The new rules ban inactivity fees for gift cards unless there has been at least 12 months of no activity. So, there's no need to worry anymore about losing half your balance by the time you use the gift card 6 months after your birthday.
All cards must also remain active for a minimum of 5 years from their date of activation, and issuers need to clearly disclose their terms of expiration and fee structure to gift card buyers up front.