The Credit CARD Act of 2009: New Protection for Consumers

In May of 2009, the U.S. Congress passed the Credit Card Accountability, Responsibility and Disclosure (or Credit CARD) Act. While certainly not everything that consumer advocates have wanted, this new law offers a number of valuable safeguards for credit card users. In this article I will briefly highlight several key components of this important consumer protection legislation.

Restrictions on Interest Rate Increases. This law prohibits credit card companies from raising your interest rate on your existing balances unless you are 60 days late with a payment. (Previously, your interest rate could be raised if you were late with even one payment.) Additionally, if your payment is more than 60 days late and the default interest rate kicks in, the card issuer must lower the rate back to the original rate after you have made six consecutive months of on-time payments. This means that even if you do get behind on your payments and become subject to a high default interest rate, you will now have the opportunity and the right to get your lower rate back. Another new restriction relates to promotional interest rates, which now must remain in place for at least six months before they can be increased. Furthermore, according to the new regulations, the regular interest rate on a credit card cannot be increased during the first 12 months.

New Limitations on Various Fees. The new law also places a number of limitations on various types of credit card fees, most notably on over limit fees. Under the new regulations you will not be subject to over limit fees unless you agree to “opt in” and allow over limit transactions on your account. If you choose not to allow them, then any transaction that would put you over your credit limit are simply be denied. Additionally, card companies are no longer allowed to charge consumers for making payments by phone or over the Internet (but they can still impose a fee on consumers who want expedited payments).

How Payments Are Applied. Really good news for consumers is that the new legislation requires that any amount that a consumer pays above his/her monthly minimum payment must first be applied to the highest interest rate balance. Previously, most credit card companies applied payments first to the lowest rate balances and then to the higher rate balances, a practice which cost consumers more money.

Special Restrictions for Consumers under Age 21. One somewhat controversial portion of this legislation is the portion which restricts credit card access for those under 21 years of age. Consumers under 21 are now allowed to get a credit card only if they can prove they have “independent means” to repay the debts they incur, or if they can get a co-signer aged 21 or older. While the intention of this provision is to protect younger consumers, there are some who question this particular approach to doing so.

The preceding are the most significant changes brought about by the Credit CARD Act of 2009, which took effect in February 2010. While this new law is certainly not perfect, it actually does a lot to protect consumers from some of the abusive practices of credit card companies.