The CARD Act: Significant Credit Card Regulation

For years consumer advocates have been complaining about the lack of disclosure and transparency to consumers by the credit card industry. The CARD Act, which largely goes into effect at the end of February, 2010, aims to address some of these complaints.

The CARD Act’s provisions can be divided into four sections:

One: Regulations on Interest Rates and other Fees

While the CARD Act does not put any sort of limit on interest rates, it does regulate how and when credit card companies can increase them, and states that credit card companies must give advance notice (at least 45 days) of any increases before they occur. 

Specifically, credit card companies may not increase interest rates on new accounts for the first twelve months and may not increase interest rates on existing balances except under certain circumstances. Those circumstances are :

  • The original interest rate was a promotional rate which has expired. Promotional rates must be effective for at least six months and full disclosure of the promotional nature of these rates must have been disclosed to the consumer when he or she opened the account.
  • The card is based on a variable rate that the credit card company does not control and this rate is accessible by the general public
  • The consumer is exiting a hardship program. The interest rate may not exceed what it had been prior to the start of the hardship program.
  • The consumer was more than 60 days late on the minimum credit card payment.
  • The fees charged for subprime credit cards are capped at 25% of the credit limit.
  • Consumers must “opt-in” to allow transactions that take them over their credit limit to be processed and for the attendant fees. Prior to opting in, the consumer must be told the amount of the over-limit fees.

In all cases,  whenever interest rates have been increased, and for whatever reason, credit card companies are now required to review each account every six months, and if the reason for the increase no longer applies, the credit card company must lower the interest rate to what it had been previously.

Two: Regulations on Payments and Payment Processing

This part of the CARD Act covers how payments are processed and when payments are considered to be “on time.”  It includes the following provisions:

  • Any payment that is above the minimum payment should be applied to balances in the order of the interest rate charged.  For people who can pay more than the minimum, this will help them pay the card off more quickly.
  • Payments must be processed on the day they are received, and if made by 5:00 PM, on the due date are considered to be on-time. If the due date falls on a holiday or a weekend, then the payment is considered on time if it is made on the next business day.
  • Credit card statements must be mailed at least 21 days prior to the due date to give consumers enough time to pay the bill. In addition, if there is a grace period in which the consumer may pay his or her bill in full to avoid a finance charge, statements must be mailed 21 days in advance of this date. Prior to the CARD Act, statements had to be mailed within a “reasonable time.” Apparently “reasonable time” had to be defined for the credit card companies.
  • No fees may be charged for processing payments except if the consumer requests an “expedited payment” that must be made through a customer service representative.

Three: Disclosures and Warnings

This part of the CARD Act aims at making the cost of using credit more obvious and transparent to the consumer. It includes:

  • Each  billing statement must include a disclosure like the following: “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.”  The disclosure must also include the number of months that it would take to repay the balance if only the minimum is paid, the total amount that would be paid, including interest, as well as a breakdown of the total interest and principle paid. It must also include the monthly payment necessary, along with associated costs, to repay the balance within 36 months, and a toll free number to call for credit counseling. This information must be provided on every statement and be in plain view.
  • On credit accounts on which late fees may be accessed, credit card companies must disclose this fact on every statement and give the payment due date, or the date upon which the late fee will be assessed. This disclosure must also give the amount of the late fee. Again, this disclosure may not be hidden somewhere, it must be in plain view.

Four:  Elimination of the Universal Default Clause and the Double-Billing Method

Many credit card companies have a “Universal Default” clause in their credit card contracts which allows the credit card company to increase the consumer’s interest rate based on ANY default, even on another credit card or any other credit obligation. Under the CARD Act, the Universal Default clause is no longer legal and credit card companies may not use it to raise rates.

The double-billing method for computing finance charges where the credit card company can charge interest on balances already paid is now illegal and cannot be used.

To be sure, the CARD Act provides significant and much needed protection to consumers in a largely heretofore unregulated industry. It addresses some of the more egregious practices of credit card companies and will help to make credit card contracts and the cost of using credit more transparent.

However, it is important to remember that this legislation does nothing to cap interest rates and credit card companies are free to charge whatever interest rate they want so long as it is disclosed to the consumer.

You can leave a response, or trackback from your own site.

11 Responses to “The CARD Act: Significant Credit Card Regulation”

  1. […] fees, at least, on some of its customers may be part of the banks’ way of coping with the new credit card law that will go into effect on the 22nd of this month. This is not surprising, but is quite sad […]

  2. […] this.  Be sure to read all of the inserts and any correspondence the bank sends you as the new credit card law requires banks to notify you about any changes to your account. Posted in Building Credit or […]

  3. Kartenlegen per mail says:

    Thanks for the time and effort you put into your blog and detailed information you offer! I will bookmark your blog now. Thumbs up!

  4. Payment Gateway says:

    I found this post via google, and it explains what I was trying to figure out. Thanks!

  5. Clair Ramesar says:

    Because of reading your blog, I decided to write my own. I had never been interested in keeping a blog until I saw how interesting yours was, then I was inspired!

  6. A lot of strong points that you have made listed here, although I don’t accept each they’re legitimate.

  7. Tom Quicksall says:

    My own funding are in need of a examination and the insight you have put up here should help.

  8. I can agree with the fact together with you, useful factors you have created on your case.

  9. Claud Clevette says:

    I do like the content really much, was helpful the best of this was that only the necessary part was elaborated,clear concise important info often allows and preserves readers running around digging for that information will never need a read again.

  10. Deshawn Mattey says:

    Just like normal you’ve presented some great knowledge. Been a lurker on the website for a little bit and wanted to give thanks to you for taking a few minutes to write it.

  11. Arron Kneuper says:

    Our financial situation may need a shake up and the stuff you’ve posted here ought to aid.

Leave a Reply

You must be logged in to post a comment.

Buy VerizonCell Phones and Save. | Thanks to Bank Rates & Reviews, CD Rates and UK Loan
Easy AdSense by Unreal