How the CARD Act of 2009 Protects You
In 2009, President Obama signed a law designed to help curb the worst abuses by credit card issuers against consumers. The Credit Card Accountability, Responsibility, and Discloser (CARD) Act of 2009 was designed to do four main things:
- Increase consumer protections
- Make credit card companies explain their policies in clearer, plainer language
- Help people make the best credit card choices for their needs
- Demand accountability from credit card companies for unfair practices
Ban on Unfair Rate Increases
Credit card issuers can no longer raise interest rates at will. Rates can no longer be raised on existing balances, and retroactive rate increases due to late payments are now more restricted. Furthermore, the terms and conditions must remain the same for an entire first year. This prevents credit card issuers from signing up customers with enticing terms, only to change them in the first few months.
Ban on Unfair Fees
Consumers must have at least 21 calendar days to pay their monthly bills. Late fee traps like weekend deadlines, deadlines that occur midday (which can cause confusion if separate time zones are involved), and due dates that are different each month are now banned. Under the CARD Act, payments that exceed the monthly minimum must be applied against the highest interest balance first. Additionally, credit card companies must obtain a customer's permission to process transactions that will cause the consumer to exceed their credit limit. Fees are also now restricted on credit cards that are pitched to customers with poor credit or low incomes.
Protections for Students and Young Adults
Credit cards used to solicit heavily on college campuses, enticing many young people into credit they could not afford. Today, people age 18 to 21 must have proof of steady income to successfully apply for a credit card, and college campus solicitation is much more restricted than it used to be. Banks must provide legitimate reasons for participating in college campus events, and they may no longer give gifts, coupons, or other promotional items out when promoting credit cards on campus.
How Card Issuers Skirt the CARD Act
Though the CARD Act provides welcome new consumer protections, it doesn't mean that all credit card issuers are honest and fair. Many card issuers have found ways to dodge some of the reforms. Watch out for the following practices designed to dodge the new law:
- Using a "pick-a-rate" program to determine interest rates. With this method, lenders can choose the highest prime interest rate in a 90-day period on which to base the interest rate charged to borrowers. It could cost American consumers $2.5 billion in excess interest charges.
- Structuring penalty fees so that 90% of customers pay the highest fee possible while advertising lower fees.
- Padding miscellaneous fees that are not covered by the CARD Act.
The CARD Act implemented many important consumer protections, but you can bet that credit card issuers will continue to try to squeeze out profits wherever they can. They are supposed to make their terms and conditions easier to understand, and it behooves you to read and understand them thoroughly.
Additional Resources:
http://www.consumerfinance.gov/credit-cards/credit-card-act/feb2011-factsheet/
