Credit CARD Act of 2009
In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) to prevent deceptive and abusive practices conducted by credit card issuers. In 2010, a new Federal agency, the Consumer Financial Protection Bureau, was created to help administer the Credit CARD Act when it took effect that following year.
This article will discuss the reasons why the Credit CARD Act was created, the problems it was designed to solve, and discuss the consumer protections that have been implemented since the Credit CARD Act of 2009 was enacted.
Why the Credit CARD Act was Created
The Credit CARD Act was passed by lawmakers in an effort to curtail predatory practices within the credit card industry. These practices included implementing sudden interest rate hikes without prior notification or adequate reason and assessing undisclosed “over-limit” fees when the credit card issuer allowed the cardholder to spend beyond an established credit limit – only to charge a fee for the privilege of doing so.
The monthly statements associated with “fee-harvester” cards – as they became known – were notoriously unclear as to the assessment of late fees, over-limit charges and sudden changes in high interest rates.
Finally, many credit card companies had grown accustomed to marketing to underaged consumers on college campuses, generating cardholders in some instances who lacked the financial understanding and maturity to responsibly manage debt.
Restrictions on High Interest Rates, Late Fees and Over-Limit Fees
Changes implemented in accordance with Title I of the CARD Act included restrictions on interest rate hikes, late fees and over-limit fees. For instance, interest rate hikes now require 45-days advance notice and are permissible on existing balances only after a promotional rate period ends, a cardholder makes a late payment, or there is already a variable rate within the account terms.
Prior to the CARD Act, the practice of “universal default” was actively enforced. When a cardholder fell delinquent on an unrelated account (such as a utility bill), the interest rate on an existing credit card balance could suddenly be hiked in response. This practice is no longer allowed, and today the interest rate on new transactions can only increase after an account has been active for one year, and a minimum of 45-days advance notice has been given.
Meantime, the CARD Act capped late fees at $25, though repeat offenders within a six-month period can be charged more. Additionally, over-limit fees were throttled by requiring the cardholder to “opt-in” for transactions that exceed pre-defined credit limits. If a cardholder “opts-out” of this feature, any transaction that exceeds the credit limit will automatically be denied at the point of sale, thereby preventing the over-limit fee from being charged.
Title III of the CARD Act focused on the protection of younger, college-aged consumers who can now only be granted limited credit that requires a co-signer if the applicant is under the age of 21, or proof of income that demonstrates an ability to repay credit card debt.
The CARD Act prohibits credit card companies from marketing on college campuses and requires them to maintain a minimum 1,000 foot distance if offering giveaways to entice students to apply for credit. Credit card companies are also prohibited from soliciting anyone under age 21 through direct mail offers, unless the potential recipient has already opted-in to receive such solicitations.
Subprime Credit Cards and Gift Cards
Rules were also enacted for subprime credit cards issued to individuals with weaker credit who were charged account-opening fees, as these upfront fees were capped at 25% of the available credit line for the first year.
Meantime, rules for gift cards were implemented stating that expiration could not take place before a minimum of five years had elapsed from the date of issuance, while dormancy fees can only be charged following twelve months of non-use. Fees on gift cards can now only be assessed once per month, and any possible fees must be clearly explained to a potential gift card buyer prior to purchase.
Following the CARD Act, credit card issuers must now disclose to cardholders the long-term financial consequences of making only the minimum monthly payment consistently and to specifically indicate just how long it will truly take to pay off the balance under such an approach.
The idea is that pointing out the bad news to a cardholder could serve as a deterrent to such a strategy, while also showing a more effective alternative – the amount of monthly payment required to pay off an existing balance in full, with interest, over a 36-month period.
Finally, the CARD Act mandated that for those accounts that carry different interest rates (promotional, cash advances, purchases, balance transfers, etc.), any payments made beyond the minimum payment get applied to the highest interest rate portion of the balance first, followed by the next-highest interest rate portion, etc.
This reversed the previous common practice of card companies applying payment amounts beyond the minimum payment to the lowest-interest rate balance portions first, thereby making it far more difficult for cardholders to pay off balances faster.
Time and again, I did not know how to handle my debt
Time and again, I did not know how to handle my debt. Even when I paid my credit cards off, a few months later I was back in the same situation. But this year is different. I contacted United Settlement...
Business debt relief is what I needed when I contacted the United Settlement crew
Business debt relief is what I needed when I contacted the United Settlement crew. They are committed to helping people like me who requires more help with business debt problems. I had several loans out...
Student loan debt was the reason that I reached out to United Settlement
Student loan debt was the reason that I reached out to United Settlement. I had about 200K plus in student loan debt for my business degree. I recognized that I had to do something when I struggled to make...
There is nothing worse than falling ill and then having to deal with super expensive medical bills
There is nothing worse than falling ill and then having to deal with super expensive medical bills that you really do not have the patience or experience to handle. I was pleased with my experience with...
I took out a few personal credit cards to open my boutique
I took out a few personal credit cards to open my boutique. When than money ran out, I went on to take out more loans for my business. However, this quickly turned into a disaster. Today, I now have a mountain...
Who knew that auto loans were so negative for your credit lines
Who knew that auto loans were so negative for your credit lines? Especially, if they are not paid off right away. As a married couple, we had vowed to keep auto loan debt at bay. But, we found ourselves...
I didn’t have a ton of debt when I contacted United Settlement
I didn’t have a ton of debt when I contacted United Settlement, but what I wanted from them was some information about how to handle my debt management. I knew that I needed some more information to get...
Federal student loans were the reason I ended up at United Settlement
Federal student loans were the reason I ended up at United Settlement. I had about $200K to pay back and I was not quite sure where to tackle that debt once I got out of school. But I reached out to that...
Everyone knows how horrible student loans are
Everyone knows how horrible student loans are. For me and my family, they had become more than just an annoying monthly bill. They had taken over our lives. That’s why I decided to take action and find...
I wanted to be more informed about my own personal and business debt
The number one reason I chose to contact United Settlement was I wanted to be more informed about my own personal and business debt. When you have credit card debt, it can be extremely frustrating. Especially...
I cannot believe I was finally able to find a company to actually help me pay off my debt
I cannot believe I was finally able to find a company to actually help me pay off my debt! I thought I would forever be chained to debt. But United Settlement offered me multiple solutions for paying off...
What your money can do for you.
The great reviews that you have thanks.
Dealing with high interest auto loan debt was difficult for me and my wife
Dealing with high interest auto loan debt was difficult for me and my wife. We thought we got a good deal, but it actually was a horrible loan. So, we reached out to United Settlement, and they got to work...
No one really wants to go bankrupt, and neither did my family
No one really wants to go bankrupt, and neither did my family. But fortunately, we did not have to go that route. It was our last resort, but United Settlement helped us figure out a way around bankruptcy...
I had been through about 5 different credit counseling agencies before I found United Settlement
I had been through about 5 different credit counseling agencies before I found United Settlement. I had read through their reviews and made the decision to move forward with them. I also was so impressed...
Save time and money
Just what I needed, already had a company I was working with and I switched because I was able to same some money. Brian and Alfred were really nice and helpful
As a business facing some unwanted financial difficulties
As a business facing some unwanted financial difficulties, we were at a loss for what to do next when our debt started to soar. We took a closer look at our financial situation by contacting United Settlement....
I had no clue how to create a debt management plan
I had no clue how to create a debt management plan and in fact, I didn't even know what a debt management plan was. Fortunately, I reached out to United Settlement before I had too much debt to tackle....
Being burdened by debt is one of the biggest struggles we faced as a family
Being burdened by debt is one of the biggest struggles we faced as a family. But these people at United Settlement were very helpful in deciphering the different debts we had and then coming up with a debt...
Student loan debt was my worst enemy before I ran into United Settlement
Student loan debt was my worst enemy before I ran into United Settlement. I really thought I would just have terrible credit for the rest of my life because I will never get out from underneath it. It was...