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A guide to the Credit CARD Act of 2009

Congress has enacted sweeping reforms; learn what they mean to you

By  and Tyler Metzger

Choose a main topic and then explore subtopics to see an excerpt of the specific section, an explanation of what it is and what people are saying about it.

Read the entire law.

The Credit CARD Act

Wondering what that new credit card act covers and when it takes effect? Find out in this section-by-section review of the Credit CARD Act of 2009.
Signed into law May 22, 2009, by President Obama, the Credit CARD Act limits when issuers of consumer credit cards can increase interest rates and bans billing and payment practices that the Federal Reserve calls "unfair or deceptive."For consumers, the most significant provision of the credit card act limits when credit card issuers can increase interest rates on existing card balances (called retroactive rate increases). Consumers whose interest rates are increased may get rate reductions after six months if they pay their bills on time and don't exceed their credit limits. This interactive guide gives a comprehensive look at the act, including the text of the law, explanations and plain-English translations of its key points. The package also includes audio, video and a glossary of key terms.


Credit card issuers must notify consumers of significant changes in terms on their accounts at least 45 days before they take effect. Issuers must also inform card users of their right to cancel or close the account -- called opting out -- if they do not agree to the changes.

Rates, terms and fees

The sections of the Credit CARD Act likely to affect the most consumers are those limiting when interest rates on consumer credit card accounts can be increased on existing balances (called retroactive interest rate hikes). The law also requires that fees for paying late or going over the credit limit are reasonable and related to the infraction.

  1. Interest rate increases
    1. Summary
      1. Retroactive interest rate hikes on existing balances are banned, except when:
        1. An introductory or "teaser" period ends.
        2. The interest rate is tied to an index and is variable.
        3. The card user completes the terms of a workout plan for debt repayment or fails to comply with terms of a workout plan.
        4. The card user is more than 60 days late making a monthly payment. The card issuer must give the reason for the increase and must restore the interest rate to the previous, lower level after six months if the cardholder has made on-time payments during that six-month period.
      2. Interest rates cannot increase during the first year on new accounts except under the five exceptions listed above. Promotional or "teaser" rates must last for at least six months.
        Every six months, the card issuer must conduct reviews of accounts in which interest rates have been increased based on market conditions, the creditworthiness of the card user or other factors. If those factors have changed, card issuers must, if warranted, reduce the interest rate.
      3. Universal default -- the practice of increasing card users' interest rates based on their payment records with unrelated accounts, such as utilities or other credit cards -- is banned.
      4. Effective dates: Retroactive interest rate increases: Feb 22, 2010; Reducing interest rates: Aug. 22, 2010
    2. Resources
      1. Terms
        1. Annual percentage rate - APR stands for annual percentage rate, and it is the interest rate charged on credit card balances expressed in a standardized, annualized way. The APR is applied each month that an outstanding balance is present on a credit card.
        2. Delinquenct account - A delinquent account is a credit card account that the cardholder has not made at least a minimum payment more than 30 days past due.
        3. Index - An index is a benchmark rate, such as the prime rate or LIBOR, to which a margin is applied to calculate a variable interest rate. For example, if your credit card agreement says your interest rate is prime plus 10 percent, and the prime rate is at 5 percent, your credit card's interest rate will be 15 percent.
        4. Introductory period - In credit cards, the introductory period is the length of time during which the introductory annual percentage rate is in effect. The APR will usually go up after the end of the introductory period.
        5. Issuer - A credit card issuer is any financial institution that issues, or causes to be issued, credit cards. Consumers often think that their credit cards are issued by MasterCard or Visa; they're not. Those companies are credit card transaction processors, not card issuers.
        6. Universal default - Universal default is a common practice among credit card issuers that allows them to increase cardholders' interest rates for any change in risk profile with any lender. Under universal default, credit cardholders who fail to make timely payments to other creditors -- such as other credit card issuers, utilities, car lenders, landlords or mortgage lenders -- can see their rates raised by other creditors, even if they were never late in paying those other creditors.
      2. Related stories
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        3. Credit card reform time line
  2. Double-cycle billing
    1. Summary
      1. No finance charges for previous billing cycles unless there was an adjustment due to a disputed purchase or because a payment was returned for insufficient funds.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Billing cycle - The billing cycle is the time between billing statements. With credit card statements, the time between billing statements may vary.
        2. Billing statement - A billing statement is a written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges, and interest credited or earned. The statement is usually mailed to the customer. Also simply called a statement or monthly statement.
        3. Double-cycle billing - Double-cycle billing is the balance computation method used by some issuers that allows them to apply interest charges to two full cycles of card balances, rather than the most recent billing cycle's balances. Two-cycle billing effectively eliminates the grace period for people who paid off a balance in the previous month. Double-cycle billing was heavily criticized by consumers and federal regulators banned the practice, beginning in July 2010. Also called two-cycle billing.
      2. Quote
        1. "The bill would curb some of the most arbitrary, abusive and unfair credit card lending practices that trap consumers in a vicious cycle of debt." -- Travis Plunkett, legislative director, Consumer Federation of America
      3. Related stories
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        2. What the credit card law means for you
        3. Credit card reform time line
  3. Gift cards
    1. Summary
      1. Prepaid cards, gift cards and gift certificates cannot expire within five years of activation or unless the terms of the expiration are clearly disclosed. The Credit CARD Act bans dormancy fees, inactivity fees or service fees on gift cards unless there has been no activity in a 12-month period and the issuer clearly discloses all fees before the gift card is purchased. Fees are limited to one per month. Exclusions: Prepaid phone cards, reloadable cards, loyalty or award cards, cards issued for admission to special events or venues (such as theme parks) and certificates issued in paper form only are exempt from the expiration provisions.
      2. Effective date: Aug. 22, 2010
    2. Resources
      1. Terms
        1. Gift card - A gift card is a type of stored-value payment card commonly issued by retailers and banks. Gift cards are preloaded with a set value. There are two major types of gift cards -- those that can be used only at one store chain or one location (closed loop) and those that can be used anywhere (open loop).
        2. Inactive account - An inactive account is a bank account with infrequent or no use. In the case of credit cards, if no activity is recorded for the account, some card issuers will close the account and revoke charging privileges. An inactive account is also called a dormant account.
      2. Quote
        1. "Your balance won't disappear before you have a chance to spend it." -- U.S. Sen. Christopher Dodd
      3. Related stories
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        2. Don't lose those expired gift card funds
        3. 2008 gift card comparison chart
  4. Timely payments
    1. Summary
      1. Monthly statements must be mailed or delivered to credit card users at least 21 days before the due dates. If the account has a grace period, the finance charges for the month cannot be assessed unless the user receives the monthly statement at least 21 days before finance charges are to begin.
      2. Effective date: Aug. 20, 2009
    2. Resources
      1. Terms
        1. Billing statement
        2. Grace period
        3. Late payment fee
        4. Payment due date
      2. Quote
        1. "For too long, owning a credit card company has been a license to steal. Over the last few years, the banks increased their use of abusive tactics, such as changing due dates so they could trick consumers into paying late. Worse, they charged a double whammy ; a high late fee first and then tripled interest rates to 36 percent APR or more." -- Ed Mierzwinski Consumer Program Director for U.S. PIRG
  5. Subprime cards
    1. Summary
      1. Credit card issuers cannot charge upfront fees that exceed 25 percent of the available credit limit during the first year of subprime or 'fee harvesting' credit cards. The fee restrictions do not include late or over-limit fees or fees for insufficient funds.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Available credit - Available credit is the amount that is available to be charged to a credit card amount; the difference between the credit limit and outstanding charges on the account.
        2. Bad credit - A term used to describe poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. "Bad Credit" can result in being denied future credit.
        3. Over limit - Being over-limit, or over the limit, refers to a cardholder account that has surpassed its credit limit with a transaction. When cardholders attempt to make purchases that will put them over their credit limit, the card issuer may decline the transactions or, as has become more common in recent years, may charge consumers hefty over-limit fees.
        4. Over-limit fee - A fee charged when your balance goes over your credit limit (also known as over the limit fee).
        5. Terms and conditions - Terms and conditions is the common name for the document in which credit card issuers describe in detail their practices. After a consumer applies for a credit card and receives it in the mail, the first use of the card turns the terms and conditions into a legal contract.
      2. Related stories
        1. Evils of fee harvesting cards known for long time
        2. 5 things to know about fee harvesting credit cards
  6. Allocating payments
    1. Summary
      1. Any monthly payment amounts that exceed the minimum payment due must be applied to balances with the highest interest rate first, then to balances with the next highest rate, and so on. For deferred interest programs, the card issuer must allocate the entire amount in excess of minimum during the last two months before the deferred-interest period ends.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Balance transfer - A balance transfer occurs when the outstanding balance of one credit card (or several credit cards) is moved to another credit card account. This is often done by consumers looking for a lower interest rate. Many credit card issuers offer introductory balance transfer APRs that are lower than the standard rates. Balance transfers usually have fees. - When consumers take out cash advances, they are usually charged a higher rate. The cash advance rate is higher because these loans are viewed as riskier for banks. The interest rate is typically charged from the moment of the cash advance.
        2. Cash advance rate - When consumers take out cash advances, they are usually charged a higher rate. The cash advance rate is higher because these loans are viewed as riskier for banks. The interest rate is typically charged from the moment of the cash advance.
        3. Convenience checks - Convenience checks are checks linked to your credit line that can be used just like checks linked to your checking account. Convenience checks can be made in any amount, as long as it does not surpass your credit limit. They are treated like a cash advance, meaning there is no grace period and interest is charged from the moment the check is used. They also tend to have higher interest rates than that charged for purchases.
        4. Minimum payment - The minimum payment is the lowest amount of money that you are required to pay on your credit card statement each month. See your credit card "terms and conditions" document to see how your credit card's minimum payment is calculated.
      2. Quote
        1. "Let’s be clear about what Congress and President Obama have done: We have banned practices which the Federal Reserve has declared 'unfair,' 'deceptive' and 'anti-competitive.'" -- U.S. Rep. Carolyn Maloney of New York
      3. Related story
        1. How to cope until new credit card rules take effect
  7. Due dates and times
    1. Summary
      1. Due dates for monthly payments must be the same day each month. If due dates fall on weekends or holidays, payments must be credited to the account on the next business day without late penalties. If the card issuer changes its mailing address or payment processing procedures and the changes cause delays in crediting cardholders' accounts, the issuer cannot charge late fees during the 60 days following those changes.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Billing statement - A billing statement is a written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges, and interest credited or earned. The statement is usually mailed to the customer. Also simply called a statement or monthly statement.
        2. Grace period - A grace period is the time during which you are allowed to pay your credit card bill without having to pay interest. It varies by credit card issuer. In recent years, grace periods have been shortening; 28 days used to be common, 21 days is common now. The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers; instead, interest charges start right away.
        3. Late payment fee - A late payment fee is charged to a borrower who misses paying at least their minimum payment by the payment deadline. In order to avoid late fees, ensure that you pay at least the minimum amount by the due date. Late payments may affect your credit history negatively, even if your entire outstanding balance is later paid in full.
        4. Payment due date - The payment due date is the monthly date when at least a minimum payment is due to be paid on a credit card account. It may not fall on the same date each month.
      2. Related stories
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        2. What new credit card laws means for you
        3. Credit card reform time line
  8. Over-limit fees
    1. Summary
      1. Under the Credit CARD Act, consumers must be given the option to opt in to over-limit fees. Otherwise, if they attempt to make purchases that exceed their credit limits, the transactions will be rejected. Consumers who choose to have over-limit fees must be informed of the amount of the fees and have the right to revoke their option at any time. Over-limit fees can be assessed to an account only once during each billing cycle. Consumers can opt in orally, electronically or in writing. The Federal Reserve Board must set up guidelines for selecting or rejecting the fee option and for the required notice to consumers.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Available credit - Available credit is the amount that is available to be charged to a credit card amount; the difference between the credit limit and outstanding charges on the account.
        2. Overdraft protection - Overdraft protection is a service that automatically transfers funds from one bank account to another in order to avoid overdraft fees when insufficient funds are available. It can apply to savings accounts, checking accounts, lines of credit or credit cards. Overdraft protection carries its own fees.
        3. Over limit - Being over-limit, or over the limit, refers to a cardholder account that has surpassed its credit limit with a transaction. When cardholders attempt to make purchases that will put them over their credit limit, the card issuer may decline the transactions or, as has become more common in recent years, may charge consumers hefty over-limit fees.
        4. Over-limit fee - A fee charged when your balance goes over your credit limit (also known as over the limit fee).
      2. Related stories
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  9. Pay to pay
    1. Summary
      1. Credit card issuers may not charge customers additional fees to pay their bills by mail, electronic transfer, telephone or other methods, unless customers request expedited payment (such as a last-minute payment to avoid late fees).
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Payment due date - The payment due date is the monthly date when at least a minimum payment is due to be paid on a credit card account. It may not fall on the same date each month.
      2. Quote
        1. "Card companies could not charge a fee for any payment method that is allowed, except for expedited service provided by a service representative." -- Johanna Neumann, Legislative Advocate, Maryland PIRG
      3. Related stories
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        3. Credit card reform time line

Youth and credit

The act places strict limitations on marketing and issuing credit cards to young people. Consumers younger than 21 who are not authorized users on their parents' credit card accounts must show proof of income to repay card loans or have an adult co-signer if they want accounts in their own names.

Offering free gifts (such as pizzas, T-shirts or hats) as inducements for college students to sign up for credit cards on or near campus is banned.

  1. Credit for young consumers
    1. Summary
      1. Bans credit cards for people under the age of 21 unless they have adult co-signers or show proof that they have the means to repay the debts. Prescreened credit card offers must not be sent to consumers who are younger than 21.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Additional cardholder - When you have a credit card, it is often possible to add an additional card to the account for use by someone else. The main cardholder remains responsible for making payments on all charges made, whether by the original cardholder or the additional cardholder.
        2. Authorized user - An authorized user is any person who has permission to use a credit card account, but is not responsible for paying the bill. In that way, it differs from joint credit, in which both parties are obliged to pay. In some cases, the user will receive a credit card in his or her name, even though it is linked to someone else's account.
        3. Co-signer - A co-signer is a person who signs an agreement to pay off a loan for someone else if that someone else defaults. Co-signing is a technique often used among family and friends to allow a person with good credit to vouch for a person with new credit or bad credit to get a loan. The presence of a co-signer makes lenders more willing to approve loans for high-risk borrowers.
        4. Joint account - A joint account is a bank account equally shared by two or more individuals. Parties involved all share the associated rights and liabilities of the account and are regarded by law as co-owners of the account. This means that if anything happens to the account, such as defaults or fraud, all parties are affected.
        5. Piggybacking - Piggybacking is the act of improving your credit score or rating by becoming an authorized user on someone else's credit card. By doing this, you receive all the benefits of having good credit without actually having built any of the credit yourself. It is most often used by parents with their children or with spouses.
      2. Quote
        1. "The bill’s restrictions on credit card eligibility solely based on age are discriminatory and paternalistic. These severe restrictions also go against the goal of establishing good credit for young adults and teaching them to manage credit wisely." -- John Berlau, Competitive Enterprise Institute
  2. Under-21 college students
    1. Summary
      1. Anyone younger than 21 must get permission from parents, guardians or spouses to increase credit limits on joint accounts they hold with those adults. The law bans offers of freebies (pizzas and T-shirts, for example) if students sign up for credit cards on or near campus or at college-sponsored events. The law does not specify what "near" means. Congress urges colleges to adopt policies limiting the number of campus locations where card marketing events take place, requiring credit card marketers to alert the school when they are conducting on-campus marketing events and requiring that students receive credit and debt management courses as a routine part of new student orientation.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Additional cardholder - When you have a credit card, it is often possible to add an additional card to the account for use by someone else. The main cardholder remains responsible for making payments on all charges made, whether by the original cardholder or the additional cardholder.
        2. Authorized user - An authorized user is any person who has permission to use a credit card account, but is not responsible for paying the bill. In that way, it differs from joint credit, in which both parties are obliged to pay. In some cases, the user will receive a credit card in his or her name, even though it is linked to someone else's account.
        3. Co-signer - A co-signer is a person who signs an agreement to pay off a loan for someone else if that someone else defaults. Co-signing is a technique often used among family and friends to allow a person with good credit to vouch for a person with new credit or bad credit to get a loan. The presence of a co-signer makes lenders more willing to approve loans for high-risk borrowers.
        4. Joint account - A joint account is a bank account equally shared by two or more individuals. Parties involved all share the associated rights and liabilities of the account and are regarded by law as co-owners of the account. This means that if anything happens to the account, such as defaults or fraud, all parties are affected.
        5. Piggybacking - Piggybacking is the act of improving your credit score or rating by becoming an authorized user on someone else's credit card. By doing this, you receive all the benefits of having good credit without actually having built any of the credit yourself. It is most often used by parents with their children or with spouses.
      2. Quote
        1. "They wallpaper all of those college hallways with credit cards because if you can get someone at that age to start using credit cards with your company, then you have got them for a long period of time." -- Democratic Sen. Tom Carper of Delaware
      3. Related story
        1. Student credit card issuers wearing out their welcome on college campuses
  3. Marketing contracts with colleges
    1. Summary
      1. Colleges, universities and alumni associations would have to disclose the existence and details of contracts they sign with credit card marketers allowing access to student and alumni contact information. Credit card issuers are required to file annual reports with the Federal Reserve Board detailing the terms and conditions of all business, marketing and promotional deals with colleges and universities, including the amount of any payments made to the schools. A report analyzing this data -- which is due nine months after enactment of the law (or by Feb. 22, 2010) -- must include a school-by-school breakdown. The Comptroller General of the United States must conduct periodic reviews of the annual reports filed by credit card issuers to determine the impact college card marketing programs may have on student credit card debt and recommend possible regulations.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Additional cardholder - When you have a credit card, it is often possible to add an additional card to the account for use by someone else. The main cardholder remains responsible for making payments on all charges made, whether by the original cardholder or the additional cardholder.
        2. Authorized user - An authorized user is any person who has permission to use a credit card account, but is not responsible for paying the bill. In that way, it differs from joint credit, in which both parties are obliged to pay. In some cases, the user will receive a credit card in his or her name, even though it is linked to someone else's account.
        3. Co-signer - A co-signer is a person who signs an agreement to pay off a loan for someone else if that someone else defaults. Co-signing is a technique often used among family and friends to allow a person with good credit to vouch for a person with new credit or bad credit to get a loan. The presence of a co-signer makes lenders more willing to approve loans for high-risk borrowers.
        4. Piggybacking - Piggybacking is the act of improving your credit score or rating by becoming an authorized user on someone else's credit card. By doing this, you receive all the benefits of having good credit without actually having built any of the credit yourself. It is most often used by parents with their children or with spouses.
      2. Related stories
        1. Law will alter cozy relationship between card issuers, colleges
        2. College credit card regulations brewing
        3. Top 10 ways students ruin their credit
        4. Tips for college students considering credit card

Disclosures

Credit card issuers must clearly disclose terms of consumer credit card accounts, including fees, penalties and terms. The most significant disclosure requirement is that credit card issuers must give 45 days' advance notice of significant changes in terms of credit card agreements. There are also requirements for disclosing payment due dates and how long it would take consumers to pay off their credit card debt if they make only minimum payments each month.

  1. 45 days' notice
    1. Summary
      1. Advance notice of changes to card agreements: Credit card issuers must give account holders at least 45 days' advance notice of significant changes in terms of the account, including interest rates and fees. Issuers must include a notice informing the card user of the right to cancel the account. Closing or canceling the account won't require the card user to immediately pay off the entire balance.
      2. Effective date: Aug. 20, 2009
    2. Resources
      1. Terms
        1. Card memeber agreement - The card member agreement provides the terms and conditions of a credit card account. This agreement is required by federal law as a consumer disclosure. It also represents a binding agreement between card issuers and their customers. It must include the annual percentage rate, the monthly minimum payment formula, annual fees and dispute resolution processes.
        2. Issuer - A credit card issuer is any financial institution that issues, or causes to be issued, credit cards. Consumers often think that their credit cards are issued by MasterCard or Visa; they're not. Those companies are credit card transaction processors, not card issuers.
        3. Terms and conditions - Terms and conditions is the common name for the document in which credit card issuers describe in detail their practices. After a consumer applies for a credit card and receives it in the mail, the first use of the card turns the terms and conditions into a legal contract.
      2. Related stories
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        2. How to opt out of rate increases
        3. Reg Z proposes credit card notice of term changes to 45 days
  2. Free credit reports
    1. Summary
      1. Companies that advertise offers of "free" credit reports must include statements in those ads that consumers are entitled by law to receive a free credit report each year from each credit bureau. The ads must also state that the only official Web site for obtaining those free reports is AnnualCreditReport.com. Radio and television ads must include the following statement in audio and video: "This is not the free credit report provided for by federal law."
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Credit report - A credit report is a compilation of the credit history of an individual or business. It is compiled by one or more of the credit bureaus and contains the detailed history of borrowing, payment behavior and credit inquiries.
      2. Related stories
        1. Free credit reports: How to get the ones that really are free
        2. Interactive credit report
        3. The rules behind getting a free credit report
  3. Late payments
    1. Summary
      1. Monthly credit card bills must disclose the dates by which payments must be received to avoid late penalties and the dates that the late fees will be charged to the accounts.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Billing statement - A billing statement is a written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges, and interest credited or earned. The statement is usually mailed to the customer. Also simply called a statement or monthly statement.
        2. Due date - Credit card bills have a due date. If your credit card payment does not arrive -- and get posted -- by the due date, you will be charged a late fee. It's important for credit cardholders to watch their payment due dates, since they sometimes change. Some credit card issuers allow their customers to set their own due dates.
      2. Related story
        1. How to cope until the new law takes effect
  4. Online agreements
    1. Summary
      1. Creditors must post credit card agreements on the Internet and submit electronic copies to the Federal Reserve Board. The Fed will act as a central repository for consumer credit card agreements.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Card member agreement - The card member agreement provides the terms and conditions of a credit card account. It is required by federal law as a consumer disclosure. It also represents a binding agreement between card issuers and their customers. It must include the annual percentage rate, the monthly minimum payment formula, annual fees and dispute resolution processes.
        2. Issuer - A credit card issuer is any financial institution that issues, or causes to be issued, credit cards. Consumers often think that their credit cards are issued by MasterCard or Visa; they're not. Those companies are credit card transaction processors, not card issuers.
      2. Related stories
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        2. What the credit card law means for you
        3. Credit card reform time line
        4. How to opt out of rate increases
  5. Payoff time
    1. Summary
      1. Card issuers must include a warning in monthly statements that indicates consumers who make only minimum payments increase the amount of time it will take to pay off their debts in full and the amount of interest they will pay. Issuers must also disclose the amount of time it will take card users to pay their balances off in full if they make only minimum monthly payments, the total amount they will pay, including interest, if they make minimum payments and how much they would have to pay each month if they wish to pay off the balance in 36 months. Card issuers must set up toll-free telephone numbers for consumers to get information about nonprofit credit counseling and debt management assistance. The Federal Reserve must issue guidelines for setting up the toll-free numbers to card issuers within six months of enactment (or by Nov. 22, 2009)
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Balance - On a credit card account or credit line, the balance is the amount owed.
        2. Billing statement - A billing statement is a written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges, and interest credited or earned. The statement is usually mailed to the customer. Also simply called a statement or monthly statement.
        3. Due date - Credit card bills have a due date. If your credit card payment does not arrive -- and get posted -- by the due date, you will be charged a late fee. It's important for credit cardholders to watch their payment due dates, since they sometimes change. Some credit card issuers allow their customers to set their own due dates.
        4. Minimum payment - The minimum payment is the lowest amount of money that you are required to pay on your credit card statement each month. See your credit card "terms and conditions" document to see how your credit card's minimum payment is calculated.
      2. Related story
        1. What will it take to pay off my current balance?
  6. Penalty interest rates
    1. Summary
      1. Card issuers must disclose whether interest rates will increase if one or more payments are not received on time and what the penalty interest rate will be. This notice must appear on the monthly statement near the payment due date.
      2. Effective date: Feb. 22, 2010
    2. Resources
      1. Terms
        1. Default APR - If you are late in making payments, your standard APR may increase to a default APR. Default APRs may be applied to all outstanding balances on your credit card. Also called penalty rate.
      2. Related stores
        1. How to cope until the new law takes effect
        2. Mistakes that trigger default APRs
        3. 6 tips to avoid penalty rate
  • Right to cancel
    1. Summary
      1. Consumers will have a right to opt out of significant changes in terms to their accounts, including interest rate hikes and increases in fees and other charges. Until the law's passage, opting out of interest rate increases was only granted at the card issuers' discretion and was not a consumer right.
      2. Opting out means the consumer can no longer make purchases with the card. Instead, the old, lower interest rate will be applied while the consumer repays the balance. There are three methods for repaying the balances on accounts that have been closed by consumers choosing to reject changes. Issuers can do one of the following:
        1. -- Collect the balance over at least five years.
          -- Charge a minimum payment amount that is up to twice the percentage charged before the change in terms.
          -- Use the same repayment plan used on the account at the time consumer rejects the change in terms.
      3. Credit card issuers must inform card users of the right to cancel when they mail the 45-day advance notice of the change in terms. The notice must explain the steps cardholders can take to exercise their rights to cancel, including a toll-free number to call and the deadline for opting out.
      4. Consumers who decide to opt out of the changes must not be penalized by card issuers. Opting out is not considered defaulting on the account. Issuers cannot demand payment in full of the outstanding balance or charge monthly maintenance fees on closed accounts if consumers reject the changes in terms.
      5. Card issuers can begin charging the new, higher interest rates on accounts beginning 14 days after notice of changes in terms is mailed. But that new, higher interest rate can only be charged to transactions processed after the 14th day. According to the Fed, this is to prevent card users from abusing the system by going on shopping sprees before the higher APRs take effect.
      6. There are exceptions to the opt-out rule. Consumers cannot opt out of increases in minimum payment amounts. The Federal Reserve Board has ruled that when card issuers increase minimum payments -- for example, by requiring card users to pay 5 percent instead of 2 percent of the outstanding balance each month -- account holders do not have the right to cancel their accounts based on this change. Why? Fed regulators reason this act, while often painful, is actually good for consumers. Higher minimum payments mean consumers will pay off their balances faster and pay less in finance charges.
      7. Card issuers who increase minimum payments are not required to give 45 days' advance notice of this change in terms. Instead, the Fed gives issuers the option of providing 45 days notice or informing consumers at times when they are likely to notice the disclosure.
      8. In addition, consumers who are more than 60 days late making payments do not have the right to reject APR increases.
    2. Resources
      1. Terms
        1. Default APR - If you are late in making payments, your standard APR may increase to a default APR. Default APRs may be applied to all outstanding balances on your credit card. Also called penalty rate.
        2. Balance - On a credit card account or credit line, the balance is the amount owed.
        3. Opt out - Most large credit card issuers have policies that allow their cardholders to opt out of interest rate increases. Commonly, the issuers require cardholders who want to opt out to write a formal request within a limited period of time. If they do so, cardholders can keep their old rates until the debt is paid. However, they typically lose the use of the card and the account is closed once the balance is paid off.
      2. Related stories
        1. How to opt out of rate increases
        2. Video: How to opt out of an APR increase
        3. Cardholders beware: Terms are changing
        4. Switching credit cards gets harder for some

    Studies

    The Credit CARD Act has provisions for studying a number of payment-card related issues. Congress directs several different federal agencies to conduct studies or reviews and report their findings with recommendations for what, if any, new federal laws should be enacted to address potential problems.

    1. Credit availability
      1. Summary
        1. The Federal Reserve Board must assess the state of the credit card market regarding terms, fees, disclosures and adequacy of protections against unfair or deceptive practices. The review will also include whether the Credit CARD Act has impacted the availability of credit, the financial health of card issuers, innovation in credit cards, or the use of risk-based pricing in issuing cards. The Fed must hold hearings or get comments from consumers, credit card issuers and others for the study. Based on the findings, regulators must propose new credit card regulations or state the reasons why new regulations are not necessary. The law also requires federal banking agencies to submit annual reports to the Fed detailing their enforcement activities regarding the Credit CARD Act and other federal rules regarding credit cards.
        2. Due date: By May 22, 2011 and every two years afterward
      2. Resources
        1. Terms
          1. Credit limit - A credit limit is the amount of money that can be charged to a credit card account. The size of a credit limit, and how much of it has been borrowed, has a large influence on consumer credit scores. Low credit utilization -- that is, a credit limit on which little has been borrowed -- leads to a higher credit score.
          2. Credit utilization ratio - A credit utilization ratio is used in the calculation of credit scores. It compares the amount of credit being used to the total credit available to the borrower. Having a low ratio -- in other words, not much debt but a lot of available credit -- is good for your credit score. Also known as a balance-to-limit ratio.
        2. Related stories
          1. How to cope until the new law takes effect
          2. What the credit card law means for you
          3. Credit card reform time line
          4. Will credit card law hurt more people than it helps?
    2. Credit profiling
      1. Summary
        1. Studies whether credit card issuers used information about where consumers shopped, what they purchased, the types of merchants they shopped with and their locations, and the mortgage company they borrowed from as bases for increasing interest rates or reducing credit limits. The Federal Reserve, Federal Trade Commission and other banking regulators must submit a report to the U.S. House and Senate financial services and banking committees, respectively, detailing the number of credit card issuers that engaged in the practice between May 22, 2006, and May 22, 2009. Regulators must also determine whether the profiling negatively affected minority and low-income card users. The Fed must make recommendations on any changes to existing rules or laws that may be necessary to address the practice.
        2. Due date: By May 22, 2010
      2. Resources
        1. Terms
          1. Issuer - A credit card issuer is any financial institution that issues, or causes to be issued, credit cards. Consumers often think that their credit cards are issued by MasterCard or Visa; they're not. Those companies are credit card transaction processors, not card issuers.
          2. Redlining - The illegal practice of giving differential treatment in lending, housing, insurance and other services based on the customer's race. Decades ago, lenders were said to draw a red line around an area or community marked for differential treatment, hence the term redlining.
        2. Related stories
          1. How to cope until the new law takes effect
          2. What the credit card law means for you
          3. What electronic payments reveal about you to lenders
    3. Merchant interchange fees
      1. Summary
        1. The Comptroller General of the United States must study the fees paid by retailers, gas station owners and other merchants for each credit card purchase. The study is to review, among other things, disclosure of fees to consumers and merchants, how the fees affect merchants' abilities to negotiate pricing with banks and credit card associations, the cost of the fee and how it varies among different types of credit cards, the impact of the fees on the prices of goods and services and whether merchants are allowed to give discounts to consumers who pay for items with cash.
        2. Due date: By Nov. 18, 2009
      2. Resources
        1. Terms
          1. Interchange fee - The interchange fee, also called the discount rate, is the sum paid by merchants to the credit card processor as a fee for accepting credit cards. The amount of the rate will vary, typically between 1 percent and 3 percent of the purchase amount, depending on the type of transaction.
          2. Merchant agreement - A merchant agreement is the written agreement between a merchant and a bank that contains their respective rights, duties and warranties, with respect to acceptance of the bank card and matters related to the bank card activity.
        2. Related stories
          1. Ad campaign fights interchange fees
          2. Merchant account interchange fees affect merchants, card issuers
          3. GAO: Government pays massive credit card fees, too
    4. Small business cards
      1. Summary
        1. The Federal Reserve Board must submit a report to the U.S. House and Senate financial services and banking committees, respectively, outlining the terms of credit cards issued to companies employing fewer than 50 workers. Business and corporate credit cards are not currently covered by the consumer protections in the Credit CARD Act of 2009. The study will use consumer testing and other research in looking at whether there is adequate disclosure, reasonable fees and finance charges, and the cost and availability of credit to small business owners. Regulators were also asked to report on whether and how much merchants use their personal credit cards to finance company operations. If warranted, the Fed can recommend regulations to address protections for small business credit card users.
        2. Due date: By May 22, 2010
      2. Resources
        1. Terms
          1. Business credit card - A business credit card is sought by corporate executives or business owners in order to separate business expenses from personal charges. Often, business credit cards offer business oriented rewards, such as travel benefits.
        2. Related story
          1. 5 ways to avoid being stung by business credit cards
    5. Small business data security
      1. Summary
        1. The Small Business Administration must set up a Small Business Information Security Task Force to study how best to help small businesses protect credit card data from cyber-attacks. The task force must recommend guidelines for setting up a Web site that would be a clearinghouse for information on data security and resources available to small business owners.
        2. Effective date: The task force must hold its first meeting by Nov. 18, 2009
      2. Resources
        1. Terms
          1. Business credit card - A business credit card is sought by corporate executives or business owners in order to separate business expenses from personal charges. Often, business credit cards offer business oriented rewards, such as travel benefits.
        2. Related stories
          1. 'Tokenization' touted as way to increase credit card data security
          2. Compare small business payment methods
          3. Merchants struggle to secure user data, deter identity theft
          4. What merchants must know about PCI security standards
    6. Stored-value cards
      1. Summary
        1. The Secretary of the Treasury must issue rules about stored value cards and selling, issuing, redeeming or transporting them across the U.S. border. Stored value cards have been used by drug traffickers to move large sums of money into and out of the United States. Unlike cash, which must be declared on U.S. Customs forms when visitors cross the border, there are currently no laws requiring disclosure of amounts kept on stored value cards. This provision is an attempt to address this money-laundering activity. The regulations may include adding requirements that people crossing the border with money on these cards must report their value. Officials must consider any current or future electronic forms of storing money when drafting the regulations.
        2. Due date: Feb. 16, 2010
      2. Resources
        1. Terms
          1. Stored-value cards - A stored-value card is a credit-card-sized device that is implanted with a computer chip with stored money value. A reloadable stored-value card can be reused by transferring a dollar value to it from an automated teller machine or other device. A disposable card cannot be reloaded.
        2. Related stories
          1. Study: Terrorists pay with credit cards
          2. FDIC: Prepaid stored value cards qualify for deposit insurance
    7. Emergency PINs
      1. Summary
        1. The Federal Trade Commission must study the potential use of an ATM warning system that would allow users of ATMs to alert police if they are being robbed or attacked at an ATM. The study will look into the effectiveness of using a special personal identification number (PIN) at the ATM to alert police or using a device on the outside of the ATM (such as a panic button) to alert authorities of potential danger. The report must analyze the merits of at least three types of technology and give an estimate of the number of crimes that may be prevented with the alert system.
        2. Due date: Feb. 22, 2010
      2. Resources
        1. Terms
          1. ATM - An ATM, or automated teller machine, is an interactive terminal with a touch screen or keypad that allows consumers with credit cards or debit cards to withdraw cash, check balances and/or make deposits using the magnetically encoded card to perform transactions.
          2. PIN - A PIN, or personal identification number, is a series of digits used to verify the identity of the holder of a card. The PIN is a kind of password. Consumers often may choose whether to authorize a debit card transaction by signature or PIN.
        2. Related story
          1. ATMs aren't just for withdrawals anymor

    Other

    The law addresses the need for financial literacy education in schools, ability to repay debt, penalties for violators, timely settlement of credit card bills of deceased cardholders and studying how credit card insurance plans may be marketed to consumers.

    The Credit CARD Act has two provisions that are unrelated to credit cards: Carrying guns at U.S. National Parks and banning predatory mortgage lending practices for homeowners seeking foreclosure and loan modification relief.

    1. Estate settlement
      1. Summary
        1. When a credit cardholder dies and his or her estate administrator must resolve unpaid credit card debt, the Credit CARD Act requires that card issuers settle with administrators in a "timely manner." People responsible for settling estates have complained of difficulty closing accounts and getting final payoff amounts from card issuers. The Federal Reserve Board, Federal Trade Commission and other regulators must develop procedures for card issuers to follow.
        2. Effective date: Feb. 22, 2010
      2. Resources
        1. Related stories
          1. What happens to credit card debt after death?
          2. Handling collection calls for a dead person's debt
    2. Ability to repay debt
      1. Summary
        1. Credit card issuers must not open a new account or increase the credit limit on an existing account unless the issuer has considered the borrower's ability to make the required payments on the account.
        2. Effective date: Feb. 22, 2010
      2. Resources
        1. Terms
          1. Billing statement - A billing statement is a written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges, and interest credited or earned. The statement is usually mailed to the customer. Also simply called a statement or monthly statement.
          2. Grace period - A grace period is the time during which you are allowed to pay your credit card bill without having to pay interest. It varies by credit card issuer. In recent years, grace periods have been shortening; 28 days used to be common, 21 days is common now. The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers; instead, interest charges start right away.
          3. Delinquent account - A delinquent account is a credit card account that the cardholder has not made at least a minimum payment more than 30 days past due.
          4. Late payment fee - A late payment fee is charged to a borrower who misses paying at least their minimum payment by the payment deadline. In order to avoid late fees, ensure that you pay at least the minimum amount by the due date. Late payments may affect your credit history negatively, even if your entire outstanding balance is later paid in full.
          5. Payment due date - The payment due date is the monthly date when at least a minimum payment is due to be paid on a credit card account. It may not fall on the same date each month.
        2. Related story
          1. Will credit card law hurt more people than it helps?
    3. Credit insurance polices
      1. Summary
        1. The Comptroller General of the United States must study products marketed with credit cards (namely, credit insurance programs and debt cancellation and debt suspension agreements). Credit card insurance programs charge monthly fees (that are typically added to the credit card bill) and promise to pay the consumer's monthly credit card bill should the consumer be unable to make the payment. However, there are typically numerous exclusions to payouts. The programs are often advertised in fliers included with a card user's monthly credit card bill or are offered in telephone solicitations from card issuers. The study will look at whether it is suitable to offer these products to certain customers, if the services are predatory, and the loss rates of the programs compared to traditional insurance products.
        2. Due date: Dec. 31, 201
      2. Resources
        1. Terms
          1. Credit life insurance - Credit life insurance is a type of insurance sold by affiliates of credit card issuers. Those who purchase credit life insurance may, under limited circumstances, have the insurance to repay outstanding card balances in the event of the death of the primary cardholder.
        2. Related story
          1. Credit card insurance: Don't believe the hype
    4. Financial literacy
      1. Summary
        1. Requires several federal agencies to study what federal financial and economic literacy programs are available for children in kindergarten through 12th grade and adults (especially people who are low- and moderate-income). The report must make recommendations for sources of revenue to fund the financial literacy programs, paying special attention to using credit card transaction fees as a source. The agencies must develop a strategic plan for promoting financial education. Also, the Government Accounting Office must study the relationship between fluency in English and financial literacy. That study must explore whether people who do not speak English may be unable to handle their own financial affairs.
        2. Effective date: Feb. 22, 2010
      2. Resources
        1. Quote
          1. "There are a lot of people in this country who, frankly, have not had the opportunity for an education that some of us have had, and they lack, as do some of us, the financial literacy that will enable them to make the right decision on a multitude of options, choices; to understand them, read the fine print and understand how it will impact them." -- Democratic Sen. Tom Carper of Delaware
        2. Related stories
          1. Organizations launch sites to promote financial literacy
          2. The need for early financial literacy
    5. Penalties for violators
      1. Summary
        1. Violators of any of the provisions of the Credit CARD Act of 2009 can be fined between $500 and $5,000 per incidence.
        2. Effective date: Feb. 22, 2010
    6. Guns at national parks
      1. Summary
        1. Visitors to U.S. National Parks and refuges can legally carry licensed firearms in to parks, subject to state laws.
        2. Effective date: Feb. 22, 2010
      2. Resources
        1. Quotes
          1. "It merely puts national parks and refuges in line with current regulations of national forest lands and Bureau of Land Management lands." -- U.S. Rep. Doc Hastings of Washington
          2. "I think that it would be upsetting for many visitors to the parks to know that they run a risk of an encounter with someone who's carrying a loaded gun." -- U.S. Rep. Norm Dicks of Washington
    7. Mortgage lending practices
      1. Summary
        1. This provision amends the Omnibus Appropriations Act of 2009 to clarify the Federal Trade Commission's role in making rules related to unfair or deceptive mortgage lending practices of companies offering loan modification and foreclosure rescue services. It directs the FTC to consult with the Federal Reserve Board regarding any proposed mortgage lending rules. If the FTC's unfair mortgage lending rules are violated, a state attorney general can bring civil suit against the company.
        2. Effective date: March 12, 2009

    See related: White House answers consumers' questions about the credit card law, Obama signs new credit card reforms into law, New credit card rules don't cover business, corporate credit cards, Videos: Many voices shape credit card law  

     

    Updated: February 3, 2010



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