For some years Congress attempted to pass what was called a “credit cardholders bill of rights.” Legislation was introduced in 2008 to amend the Truth In Lending Act to provide restrictions on issuers of credit cards so that consumers would have cards with terms more stable and more easily understood. The legislation was not passed until May 20, 2009.
Predatory Lending Practices a Key Reason for the CARD Act
For years credit card companies followed a number of practices that gave consumers difficulties in paying their bills and managing their credit. Some of these practices were:
- Raising interest rates to very high rates when a cardholder was even a day late with payment.
- Having different days of the month that the payment would be due, causing confusion for the consumer.
- Having a relatively short time between the closing of the month and when the payment was due.
- Always applying any extra payment to a card balance that had the lowest interest rate.
- Raising interest rates for no apparent reason and with little warning.
For these reasons and others, Congress passed the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act). President Obama signed it on May 22, 2009. The Act’s provisions go into effect on February 22, 2010, although some credit card companies are complying with the Act earlier in the month.
The Main Provisions of the CARD Act
Credit card companies cannot continue some of their predatory and arbitrary practices. Interest rate changes, due dates, and other items in the typical credit card agreement are now regulated by law. The key provisions in the Act are as follows.
- Interest rates changes require 45 days written notice to the cardholder before going into effect.
- Interest rates cannot be raised simply because the cardholder was late with a payment. So long as the payment has been made within 60 days.
- Bills must be mailed at least 21 days before the due date.
- The due date must be the same date each month. If the fixed due date falls on a weekend or holiday, the due date will be the first business day after the non-business days.
- Credit card companies may not arbitrarily change the provisions of the agreement.
- Cardholders have the right to cancel their agreement and pay off the balance rather than accept higher interest rates.
- For credit cards that have balances at different interest rates, whenever the cardholder pays more than the minimum payment, the overage will be applied against the balance with the highest interest rate.
Other provisions of the Act may be found at the Open Congress web site; follow the links.
What Consumers Can Expect From Their Credit Card Companies
The CARD Act applies to all credit cards currently in effect, and will apply to all future credit cards. Credit card companies should be providing cardholders with a statement explaining how their credit card agreement is being changed to comply with the Act. This should reach cardholders before the effective date of the Act (Feb 22, 2010).
Credit cardholders can expect greater stability in their consumer credit agreements. Interest rates will change less often; due dates will be stable; cardholders are protected against changes in the credit card agreement.
David A. Todd - David Todd is a civil engineer, a genealogist, a citizen concerned with the environment, and a writer by passion.
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