Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 a little over a decade ago. The CARD Act, as it’s more commonly known, is a major piece of federal legislation that regulates credit card issuers in the U.S. It expanded the Truth in Lending Act by adding transparency related to credit cards terms and conditions, and placing limits on certain fees and interest charges credit card customers previously faced.
But while the CARD Act of 2009 introduced new protections on consumer credit cards, some less desirable practices (at least from a consumer perspective) are still allowed. Because of this, it’s important to know how the CARD Act protects consumers like you, and where it does not.
Ways the CARD Act Protects You
Legislators designed the CARD Act to protect consumers from unfair and abusive practices by credit card companies. The act’s credit card safeguards fall under three broad areas: consumer protections, enhanced consumer disclosures and protections for young consumers.
Here’s a look at some of the key protections the CARD Act provides.
Interest Rate Hike Limits
The CARD Act of 2009 instituted limits on interest rate increases that credit card issuers can charge. Prior to the law going into effect, credit card companies could hike interest rates at will with no advanced notification to borrowers. Worse yet, they could increase interest rates on both future purchases and existing balances as they wished.
Now a credit card issuer must generally wait until your account is at least 12 months old to raise your interest rate. And, if it wants to do so, it must notify you 45 days in advance of any interest rate hike.
If a credit card company increases the APR on your account, it must also inform you that you have a right to cancel before the new rate takes effect. Credit card companies have to give you a 45-day notice, and you can cancel during that period. However, the new APR will take effect 14 days after the notification.
Whether or not you cancel, the higher interest rate cannot be applied retroactively. So, your existing balance will not be subject to the higher rate, only new purchases made at least 14 days after the notice.
If you decide to cancel, then the issuer has to give you five years to repay the outstanding balance at the original interest rate, but your minimum payment might go up. They can charge up to twice of what you were paying as a minimum monthly payment.
No Double-Cycle Billing
In the past, some credit card issuers used the average daily balance of your last two billing cycles to calculate interest charges. This practice is called double-cycle billing. It could increase the cost of interest charges and had another troubling effect—Even though you might have paid off all the money you borrowed in the first month, there was a chance you might still pay interest on those charges anyway.
Thanks to the CARD Act, card issuers can no longer charge interest on any balances outside of the most recent billing period. Finance charges are now based on the average daily account balance during the last billing cycle only.
The CARD Act of 2009 called for fees imposed upon consumers to be “reasonable and proportional.” It placed limits on late fees and changed how credit card companies can charge for over-limit fees.
The initial cap on late fees was $25 for the first time payment due date was missed, and $35 if payments repeatedly came in late. Each year, the CFPB reassesses the late fees and can adjust them. The last adjustment came in January 2020, when the fee increased to $29 for the first late payment and $40 for multiple late payments within six credit card billing cycles.
The law effectively ended over-the-limit fees for consumers, with a significant caveat. Borrowers can still be subject to over-limit fees if they specifically chose to opt-in and allow those fees. In the past, if borrowers reached the limits on their credit cards and made purchases that went over the limit, those transactions were approved, and those consumers were hit with over-the-limit fees.
That is no longer the case. Now, those purchases should be declined, meaning you avoid going over your limit, and the credit card issuer doesn’t get to charge you a fee. But, if you opt-in and allow your credit card company to approve over-the-limit purchases, then you are subject to the fee.
Borrowers with subprime credit scores often paid high upfront costs to get a credit card. These include annual fees, monthly fees, activation fees and account set-up fees. The CARD Act of 2009 didn’t eliminate these fees, but it did cap them. Combined, these fees for subprime, or “fee harvester,” credit cards cannot exceed 25% of the credit limit established when the account was first opened.
Introduced Rules for Underage Consumers
Thanks to the CARD Act, you must generally be at least 21 years old to open a credit card alone. If you want to open an account before then, you’ll need to add an adult co-signer to your application.
But there is a way around this restriction. The law makes an exception for young adults who can prove an ability to repay their credit card debt on their own.
What the CARD Act Doesn’t Do
The CARD Act of 2009 introduced sweeping reforms of the credit card industry. However, it didn’t eliminate all concerns.
Below are a few examples of the CARD Act’s limitations.
No Maximum Interest Rate
One of the most-cited omissions in the CARD Act is the lack of a cap on the maximum interest rate a creditor can charge. In 2010, subprime card issuer First Premier offered a credit card with a 79.9% interest rate. Recently, the same card issuer offered a card with a 36% interest rate (the maximum rate allowed in South Dakota, where First Premier is headquartered), along with a number of fees. (The First Premier Bank Gold Card is currently on Forbes Advisor’s list of infamous credit cards you never get.)
Card Issuers Can Still Raise Your Interest Rate
The CARD Act of 2009 initiated limitations on interest rate increases. But there are still plenty of opportunities for card issuers to raise your rates.
First, if your account has a variable APR tied to an index, like the prime rate, then as the index increases, your APR will too. With credit cards that offer low introductory APRs or other promotional rates, then the annual percentage rate will increase when the promotional period ends. All promotional rate periods must last for at least six months.
Also, if you are 60 or more days late on your minimum monthly payment, then creditors can raise the interest rate on your card to a penalty APR that is disclosed at the time of account opening. In this scenario, your card issuer can even increase the interest rate on your existing balance. However, if you follow up these late payments with six months of consecutive on-time payments, your card issuer must reduce your rate again on your existing balances, however, your penalty APR for new purchases can remain in place indefinitely
Deferred Interest Still Exists
Retail stores often offer no-interest promotions on purchases if consumers pay off the balances before the promotional period ends. (Think, “no interest paid if you pay your balance in full by January 2022.)
The National Consumer Law Center wants to see this practice end. It views this type of financing as a “hidden trap.”
“If the consumer does not pay off the entire balance by the end of the period, she will be hit with a huge retroactive interest charge for the entire balance, including amounts that have been paid,” the organization stated in comments submitted to the CFPB in February 2013. Furthermore, “They are inherently unfair, deceptive and abusive, and violate the rule in the Credit CARD Act against retroactive interest charges.”
No Protection for Small Business Credit Cards
When the CARD Act became law, its protections extended only to credit cards issued to consumers, not business credit cards. The National Small Business Association and other groups have been beating the drum from the very beginning about the need to afford business owners the same protections as consumers.
Over the years, business owners have become more reliant on credit cards as a form of flexible financing. Some business owners will carry both a personal credit card and a business card, and sometimes use them interchangeably. (Although using a personal card for business expenses and vice versa is usually a bad idea.)
If the credit practices were deemed unfair for consumers, then why are they not considered unfair for business owners, argued NSBA President Todd McCracken in testimony before the Financial Institutions and Consumer Credit subcommittee in the U.S. House back in March 2009.
While many card issuers have voluntarily offered some of the protections enacted in the CARD Act, McCracken said he wants to see them codified.
More Changes on the Horizon?
With all the good the CARD Act of 2009 has done, many consumer and small business advocates believe there’s still work to be done. The National Consumer Law Center, for example, sees shortcomings in the law and wants the Consumer Financial Protection Bureau to strengthen the act, which is in the midst of a 10-year review.
The NCLC noted only a handful of consumers have offered comments during the CFPB’s reviews of the CARD Act. But the agency received more than 84,000 complaints about credit card issues over the year.
But there are those who oppose additional reforms as well. Some experts argue that additional credit card legislation could lead to unintended consequences, such as the widespread interest rate increases that occurred before the CARD Act originally passed in 2009.
Only time will tell if legislators impose more restrictions on the credit card industry. In the meantime, if you think your credit card company isn’t following the rules already established in the Credit CARD Act of 2009, you have a few options.
You might start by contacting your issuer directly to report your complaint. If your card issuer isn’t willing to fix the problem, you can file your complaint directly with the Consumer Financial Protection Bureau. Once you file your complaint with the CFPB online, you can generally expect an answer in 15 to 60 days.