On May 22 the Credit CARD Act of 2009 was signed into law by President Barack Obama. The full title of the law -- Public Law 111-24 -- is the Credit Card Accountability Responsibility and Disclosure Act of 2009. It amends the Truth In Lending Act, the Federal Trade Commission Act and the Electronic Funds Transfer Act.
Following is a description of the main provisions of this important consumer protection legislation. Keep in mind that there are numerous sections of the law where the Federal Reserve Board -- called the Board from here on -- often with the cooperation of other regulatory agencies, will be required to develop rules that describe how the law will work in "real life." In other words, this is not the final word on this legislation, and is meant to help you understand it, not provide a legal interpretation.
Most of the provisions in this bill go into effect Feb. 22.
Protection of credit cardholders
Advance notice of rate increase and other changes
Credit card issuers must notify you of a rate increase -- or any other significant change in terms to your credit card account -- at least 45 days in advance of the effective date. (The Board will develop rules that address what a "significant change" means.) This notice must be clear and conspicuous, and will give you the opportunity to close the account. (This requirement went into effect in August 2009.)
If you decide to close your account to avoid the new terms, issuers won't be able to charge a penalty fee for closing your account, place you in default just because you close your account while you still owe a balance, or require you to pay your balance in full immediately. But if your card issuer does raise your rate (or tells you it is going to) and you close your account, your card issuer can require you to pay back your balance over five years, or double your previous minimum monthly payment.
Retroactive rate increases and universal default prohibited
Issuers cannot increase the annual percentage rate, fee or finance charge on your existing (outstanding) credit card balance except in certain circumstances.
Your rate can go up if the rate you were given was clearly disclosed as lasting for a certain period of time. For example, your card issuer could offer an introductory rate if you were told what the new rate would be after the introductory period expired. Promotional rates must last for at least six months unless the Board comes up with other rules that allow for shorter promotional periods.
Variable rate cards (which change as the underlying index changes) are still permitted. For example, if your interest rate is based on the prime rate plus 5.99 percent, adjusted annually, your rate will change if the prime rate changes.
A credit card issuer may raise your rate on your outstanding balance if it had been temporarily lowered during a "workout" or temporary hardship arrangement that you either completed, or dropped out of.
If you are 60 days late on a credit card payment, then your issuer can raise your interest rate retroactively, but you must be given the opportunity to earn back your previous rate if you make your minimum payments on time for six months.
An issuer cannot raise your rate on your credit card in the first year except in the circumstances above (such as an introductory interest rate, or if you fall 60 days or more behind.)
Interest rate reductions
If a credit card issuer increases your annual percentage rate based on factors such as your credit risk as a borrower, or market conditions, the creditor shall consider changes in those factors in subsequently determining whether to reduce your annual percentage rate.
Every six months (at a minimum), issuers must review accounts on which they raised the interest rate since January 1, 2009, to assess whether the facts they used to raise the interest rate have changed. If so, they must lower your rate. For example, let's say your card issuer raised your rate due to a decline in your credit score. If, a year later, your credit score is back to where it was when they first raised your rate, the card issuer would likely be required to lower your rate.
This section of the law can clearly get complicated, so the Board must issue final rules describing how this will work no later than 9 months after enactment, and this section will go into effect 15 months after the date of enactment.
Two-cycle, or "double-cycle," billing is banned.
Over-the-limit and other fees
Over-the-limit fees: Issuers cannot charge you a fee if you go over the limit on your credit card unless you have given them permission to authorize purchases that put you over your limit. Issuers cannot charge an over-the-limit fee if you go over the limit solely due to interest charges or fees.
If the issuer does authorize a purchase that puts you over your limit, you cannot be charged an over-the-limit fee unless you had opted-in to be allowed to go over the limit. (This does not require card issuers to allow you go to over your limit. They are still free to decline purchases above your credit limit.)
When over-the-limit fees are permitted, an issue cannot charge an over-limit fee more than once per billing cycle. If you only go over the limit that one time (and don't continue making purchases that put you over your limit), you cannot be charged over-the-limit fees for more than three months in a row, even if your required minimum payments don't bring you back under the limit.
Payment fees: Issuers can't charge fees for accepting payment by mail, electronic transfer, telephone authorization, or other means, unless the payment involves an expedited service by a service representative of the creditor.
Reasonable fees: Late payment fees, over-the-limit fees, or any other penalty fees or charges, must be reasonable and proportional to the violation. The Board will work with banking regulators to develop guidelines describing what is reasonable here. (This provision becomes effective 15 months from enactment.)
Fixed rate means fixed
If a credit card company offers a "fixed" interest rate, the rate must not change or vary for any reason over the period specified clearly and conspicuously in the terms of the account.
If portions of your balance are at different interest rates, any payment in excess of the minimum payment must be credited first to the balance with the highest interest rate, then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.
If you have a deferred interest arrangement ("buy now, pay later" or "interest-free for six months" for example), the creditor must allocate the entire amount you've paid above the minimum payment to the balance on which interest is deferred during the last two billing cycles immediately preceding the expiration of the period during which interest is deferred. (Essentially this gives you the opportunity to pay off your deferred interest balance without having to pay off your entire balance if you have other outstanding balances at different rates.)
Changes by Card Issuer: If a card issuer makes a material change in the mailing address, office, or procedures for handling cardholder payments, and such change causes a material delay in crediting your payment during the 60-day period following the date on which that change took effect, the card issuer may not impose any late fee or finance charge for a late payment on the credit card account.
Subprime, or "Fee Harvester" credit cards
Fees on a credit card (not including late fees, over-the-limit fees, or returned check fees) cannot exceed 25 percent of the credit limit when the account is opened.
Statement delivery and due dates
Statements must be mailed or delivered to a consumer at least 21 days before the due date. Tip: If you did not receive your statement, there is a federal law that protects you, but make sure you know and follow the rules.
If a due date falls on a holiday or weekend when payments are not received or accepted by mail, the creditor cannot count a payment late if it is received the next business day. Payments received by 5 pm must be credited the same day.
If a card issuer accepts payments at branch locations, they must be credited the day they are received at the branch.
If your credit card carries a grace period, your statement must be mailed or delivered to you at least 21 days before the due date.
Floating due dates -- due dates that change from time to time -- are no longer allowed.
This section goes into effect 90 days after date of enactment.
Credit card issuance
Credit card issuers cannot extend credit, or increase a credit limit, without considering the borrower's ability to repay the debt.
Payoff timing disclosures
Credit cards must now contain a warning: "Minimum Payment Warning: Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance," or a similar statement the Board develops.
The card issuer will also be required to tell you how long it will take and how much it will cost to repay your balance if you only make minimum payments. They must also tell you how much you must pay in order to pay off your balance in three years or less, and supply a toll-free number where you can get information about credit counseling and debt management services.
From the editor: Part two explaining the changes in credit card regulations will run next week in The South Missourian News.