Credit Card Rules and the CARD Act

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (also known as the Credit CARD Act) is a law that aimed at preventing abusive lending practices within the credit card industry. It has been in effect since 2010.

Protections Offered by the Credit CARD Act

The Credit CARD Act provides a variety of protections for credit card holders and applicants. Credit card scams may ignore these rules or try to offer you “better" options, so it's a good idea to know what the law does, and how it protects you.

These laws provide several protections for consumers, primarily in the areas of interest charges, credit card fees, and interest rate increases. Here is a brief breakdown of many portions of the law:

Annual Percentage Rate (APR) Increases

Credit card companies charge interest when you borrow money or don't pay off your bill each month. Interest is usually stated as a yearly rate, which is the annual percentage rate, or APR.

Under the Credit CARD Act, credit card issuers are not allowed to raise APRs on existing card balances within one year of an account being opened.

There are four exceptions to this rule:

  1. A bank disclosed 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. The customer fails to follow 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 cardholder fails to make the required minimum payments within 60 days

Note: After one year of when the account was opened, credit card companies are allowed to raise APRs. 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

Unfortunately, credit card companies are known for using fine print and making it difficult for consumers to understand terms and conditions. The CARD Act created notice requirements for issuers and important required disclosures. You have a right to:

Advance notice of rate increases and important changes

  • Credit card companies are required to give 45 days' notice of changes to the APR
  • They must give 45 days' notice for any other significant changes to the terms and conditions of your credit card agreement
  • Examples include increases in fees or finance charges

Notice of changes to the agreement must include information on your right to cancel

  • When you get any notice of changes, you must be given 45 days to cancel the agreement
  • If you choose to cancel, this can't be deemed a default by the issuer
  • The credit card company can't force you to pay off the entire balance upon cancellation

Disclosure of total time required to pay down debt

  • Statements must show your monthly payment amount to pay off the existing balance in 36 months
  • This payment must include both payment and interest
  • Statements must also warn about the cost of making only the minimum required payment

Disclosure of due dates and fees

  • Statements must prominently display the due date for the next payment
  • Statements must display any potential fees for late payment and when the fees would apply

Notice of penalty APR

  • Statements must give notice about increases in interest rate after a late payment
  • The notice must include the penalty interest rate

Disclosure of how much interest/principal is paid

  • Statements must display how much you paid in interest and fees during the current year

Rules for Late Payments

The CARD Act gives increased protections for consumers to receive monthly statements. The payment can't be considered late unless the statement was mailed or delivered to the customer at least 21 days before the due date.

Rules for Handling Payments

Credit card companies have to abide by certain rules for handling payments made on an account. Some credit card users have multiple APRs applying to different types of debt (for example, balance transfers and cash withdrawals). Credit card companies must apply any payments to debt in the order of the highest APR first.

That means credit card companies can 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 prohibited. Double-cycle billing occurs during the calculation of interest charges for a month. Some credit card companies used to 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.

Rules for Universal Default

There used to be a practice where creditors raised your interest rates based on your payment records with other creditors. This practice has been cut back, if not eliminated altogether.

Credit card companies are no longer allowed to raise interest rates on existing balances based on this manner. They can only raise the APR on future balances if they give 45 days' notice.

Get Legal Help With Your Questions About Credit Card Rules

If you're concerned about your credit card company's practices or the terms of your cardholder agreement, you may want to contact a local attorney for assistance.

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