The CARD Act: Shielding You from Credit Card Abuse

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 focuses on your protections from credit card industry practices that have been deemed to be either unfair or just plain tricky. Among the key protections are easier-to-understand terms, fewer retroactive interest rate increases on existing card balances, more time to pay your monthly bills, more notice of changes to your credit card terms, and the right to opt out of many changes in terms on your accounts.

Here’s a list of the top protections that consumers are due:

• No more bait and switch: Card issuers can’t hike interest rates on existing balances except under certain conditions. Consequently, interest rates on new card charges can’t change in the first year, major terms of the agreement can’t change overnight, and you get 45 days’ advance notice of any big changes.
• No more universal default: You may have heard of people having their rates raised on one card when they have a problem with another one (known as universal default). This practice has been severely curtailed. Card issuers may use universal default only on future credit card balances that exist at the time of the default, and they must give you at least 45 days’ notice of the change. You now have time to change cards, get other financing, or pay off the balance.

• Limits on interest rate increases: Card issuers may raise your interest rate on existing balances only if:
  • The rate was part of a promotional period that ended.
  • The index used to set your variable interest rate rises.
  • You’re at the end of a hardship or special payment agreement.
  • You have late payments of 60 days or more.
• Credit-granting restrictions for young adults: Creditors can’t give credit cards to young adults with no income. People under 21 must show that they have enough income to repay the card debt or have a cosigner who does. Additionally, credit card companies must stay at least 1,000 feet away from colleges if they offer incentives to entice students to apply for credit cards. No more signing up for credit cards to get free pizza and T-shirts your first day on campus!

Be very careful about cosigning for anyone, including your kids. If one of your kids misses a payment for any reason, that missed payment not only damages his or her credit, but also hurts your credit as well (not to mention your relationship). Instead of cosigning for your kids, add them as authorized users on your account. You don’t even have to hand over a credit card or allow them to spend money. This way, you’re helping them build positive credit while remaining in control of their credit (and yours!).

Alternatively, get your kids prepaid cards (only one per kid) that you can add to as they need funds. If you want to help them build credit and savings, help them set up secured credit card accounts with your bank or credit union — that can help them save money and build credit at the same time. Just be sure they understand that abusing a secured credit card can wipe out their savings and their credit history just as quickly.

• Graceful grace periods: Card issuers must give you “a reasonable amount of time” (at least 21 days after the bill is mailed) to pay monthly bills. More time to get your payment in should result in fewer late fees.
• No tricky due dates or times: Card issuers can no longer set early-morning deadlines (before the mail is delivered) for payments. Cutoff times must be 5 p.m. or later on the date due, and due dates can’t be on a weekend, a holiday, or a day when the card issuer is closed for business.
• Payments applied fairly: If you owe money at different rates on the same card (many cards have different rates for regular purchases versus cash advances and balance transfers), payments over the minimum due must go to the balance with the highest interest rate first. Consequently, your payment will reduce more of your balance faster.
• Easy on the over-limit fees: Card issuers can’t charge you over-limit fees without your permission. If you opt out or say no, transactions exceeding your credit limit are rejected. Opting out of over-limit fees is a good idea. If you decide to opt in, though, no fees can be larger than the amount of the overage. For example, going $10 over your limit can’t incur a fee of $39; the limit is $10. Better just to say no to those fees and face the potential embarrassment of having your card declined if you go over the limit.
• No double-dealing double-cycle billing: Interest on outstanding balances must end in the billing month in which you pay off the balance. For example, your statement runs from June 1 to June 30, but the payment is due on July 20. The interest from June 30 to the payment due date of July 20 can no longer be charged if you pay off the balance in full, even though the card issuer didn’t get your payment until July 20.
• Disclosing how making minimum payments can keep you mired in debt: Card issuers must indicate how long paying off the entire balance will take if you make only the minimum monthly payment. They must also indicate how much you need to pay each month to pay off a balance in 36 months, including interest. Seeing the high cost of minimum payments enables you to make better-informed decisions about how you pay for the use of credit.
• Restricted late fees: Late fees are limited to $25 unless you’re late more than once in a six-month period. Your late payment is not reported to the credit bureau until your account is a full 30 days past due. This restriction results in fewer and lower fees charged to your account and gives you time to resolve issues before they hit your credit report.
• Right to opt out of changes: Card issuers must give you advance notice of changes to the terms of use for your credit cards. You now have the right to reject many significant changes in terms to your credit card accounts.

If you opt out of some changes, you may be required to close your account and pay off any balance under the old terms and conditions.

Although the CARD Act provides a lot of consumer protections, it’s not all-encompassing. It doesn’t cover business and corporate accounts or interest rates on future purchases. Cards with variable or floating interest rates (which includes most cards) are subject to interest rate increases as the prime rate goes up. And a card issuer can still close your account or lower your limit without warning.

If you believe that a card issuer has violated any of the provisions of the CARD Act, contact customer service and ask for an explanation or a rebate. If you disagree with the answer, you can contact the Federal Trade Commission, your state’s attorney general or consumer protection department, or the Consumer Financial Protection Bureau’s Consumer Response Center.