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The Credit Card Act of 2009: What It Does and Doesn’t Do

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For every credit card sin, even minor ones, there used to be fire-and-brimstone consequences from the issuer. The Credit Card Accountability Responsibility and Disclosure Act of 2009, also known as the Card Act, changed that.

After passing with strong bipartisan support in the House and Senate, the Card Act was signed into law in May 2009 by President Barack Obama. If you’ve made a late payment on a credit card since the law passed, or if you maxed out a card  — or even if you’ve ever carried a balance! — you can thank the consumer protections in the law. Without them, those actions might have cost you a lot more.

In this article

• The impact of the Card Act
• What the Card Act covers
• What the Card Act doesn’t cover
• What to do if your issuer breaks the rules

The impact of the Card Act

The Card Act reduced “gotcha” credit card fees by more than $16 billion in the years after it passed, according to estimates from the Consumer Financial Protection Bureau, the agency tasked with enforcing the law. In a 2015 report, the bureau noted some positive changes for consumers since the law was implemented:

      • Average late fees assessed are now $27, down from $35 before the Card Act.
      • Over-limit fees have mostly disappeared.
      • Issuers rarely “reprice” accounts anymore — that is, they generally don’t increase interest rates on both new and existing balances because of a cardholder’s infraction on one account or another.

Still, the Card Act hasn’t escaped criticism. The American Bankers Association says the law has driven up credit card interest rates and annual fees. The ABA also blames the law for shrinking credit lines and making credit less available, especially for subprime borrowers, young people and immigrants. On the flip side, some consumer advocates say the law doesn’t go far enough in stamping out harmful issuer practices.

What the Card Act covers

In broad terms, the Card Act curtails certain credit card charges, protects young consumers and makes the true cost of credit more transparent. It also restricts fees on gift cards and nonreloadable prepaid cards. Here are some of its most notable protections:

  • Fewer surprise interest rate increases. Not long ago, a late payment on one account could cause all of your issuers to raise the interest rates on your existing credit card balances — even the ones you paid on time. The law reined in this practice, called “universal default,” by generally banning interest rate hikes on new balances in the first year after account opening and, with some exceptions, prohibiting increases on existing balances. It also requires issuers to notify cardholders about any interest rate increases and other “significant changes” at least 45 days in advance, in most cases.
  • Limits on double-cycle billing. With this practice, now mostly banned, issuers used two billing cycles’ worth of balances to calculate monthly interest charges, instead of one. This often drove interest charges up.
  • Limits on late fees. As of January 2017, the law generally caps fees at $27 for a first late payment and $38 for any subsequent late payment in the following six months. These caps are adjusted annually for inflation.
  • Opt-in required for over-limit fees. Issuers can no longer charge these fees unless cardholders opt in to allow the issuer to approve transactions that push them over their credit limit. After this restriction was implemented, most major issuers got rid of over-limit fees.
  • Restrictions on “fee-harvester” cards. The law took aim at low-limit, high-cost cards marketed to borrowers with bad credit. It requires issuers to limit required fees (such as annual fees and maintenance fees) to no more than 25% of a card’s total initial credit line in the first year.
  • Better billing practices. The law requires issuers to mail or deliver credit card statements 21 days before the due date, which should be the same day each month. It also sets limits on which payments issuers can deem “late,” and how issuers can allocate payments among balances with different interest rates.
  • Tighter lending standards. Before extending credit to you, issuers now have to consider your “ability to pay.” That means reviewing your income and debt obligations before approving you for a card. If you’re over 21, you can include any income to which you have “reasonable expectation of access,” including a partner’s income.

  • Minimum payment warnings. On monthly credit card statements, issuers are now required to disclose how long it would take and how much it would cost to pay down your balance in full if you made only the minimum monthly payment. The law also requires other repayment disclosures.
  • Penalty disclosures. Statements must include clear disclosures about due dates, late fees and penalty rates.

  • Limits on college campus marketing. The law generally prohibits issuers from using “inducements,” such as free pizzas, Frisbees or T-shirts, to market cards on or near college campuses.
  • Age restrictions. Consumers can apply for credit cards starting at age 18, but the law prohibits issuing cards to those under 21 unless they have an independent income or a co-signer.

  • Limits on fees. The Act sharply limits how gift cards and nonreloadable prepaid cards can levy certain service charges, such as inactivity fees. It doesn’t restrict one-time card-issuance fees, though.
  • Restrictions on expiration dates. The sale of gift cards and nonreloadable prepaid cards with expiration dates is generally prohibited, with certain exceptions.

What the Card Act doesn’t cover

Shortly after the Card Act became law, one subprime credit card issuer started offering a card with an annual percentage rate of 79.9%. As it happens, that’s still legal. The Card Act limits how issuers can increase interest rates on existing accounts, but the interest rates themselves are still governed by state laws.

Among other limitations, the law also doesn’t protect you from certain fees or interest rate increases. It also applies only to consumer credit cards — not business credit cards.

  • Certain interest rate increases. When the Federal Reserve raises rates, issuers can pass along those increases to consumers without the 45-day notification required for most credit card rate hikes. Another exception: When a promotional 0% APR period ends, the issuer doesn’t have to notify the cardholder that the card will now charge the ongoing rate.
  • Deferred interest offers. Often found on store cards, these “no interest if paid in full” offers have a little-understood catch: If you still have a balance remaining when the interest-free period ends, you’ll be charged retroactive interest going all the way back to when you made the purchase. Such offers technically violate two provisions in the Card Act, the National Consumer Law Center says in a report. But the Federal Reserve “carved out an exception, asserting that Congress intended to preserve these plans,” the NCLC says.
  • Many subprime credit card fees. A handful of fee-harvester credit card issuers circumvent the so-called “25% rule” by charging large fees before these accounts open and bumping up fees in the second year.
  • Various benefits. Most credit card perks — including grace periods and rewards programs — aren’t mandated by the Card Act, or any other law.

What to do if your issuer breaks the rules

If you think your rights under the Card Act are being violated and your issuer isn’t responding to your complaints, lodge a complaint with the CFPB. The bureau will work on your behalf to get a resolution.

This article has been updated. It was originally published Nov. 17, 2011.

Claire Tsosie is a staff writer at NerdWallet, a personal finance website. Email: claire@nerdwallet.com. Twitter: @ideclaire7.