The Credit Card Accountability Act

by Diane Baker

            The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Pub. L. 111-24, 123 Stat. 1734) contains extensive statutory changes in card protections for consumers. The Act is intended to help protect consumers from abusive fees, penalties, interest rate increases, and other unwarranted changes in account terms.

            The Act, in general, took effect on February 22, 2010, although some changes went into effect on August 20, 2009, and others will not go into effect until August 22, 2010. The Board of Governors of the Federal Reserve System is amending Regulation Z, which implements the Truth in Lending Act, in order to implement the provisions of the Credit Card Act that are effective on August 20, 2009. These amendments are being issued in the form of an interim final rule and primarily pertain to advance notices of rate increases and changes in terms and the time consumers are given to make their payments. This interim final rule is effective August 20, 2009. Final regulations implementing the Credit Card Act will be issued at a later date.

            Prohibitions and restrictions on rate increases: Effective February 22, 2010, card issuers generally cannot increase the Annual Percentage Rate (APR) on existing balances for one year after the account is opened except in these four situations: (1) When the bank disclosed, at the time the account was opened, that the APR would increase sooner; (2) When the APR for a variable‑rate card changes due to increases in a published index that is outside the card issuer's control, such as rates on U.S. Treasury securities;  (3) When the APR, fees or finance charges increase as a result of the consumer not satisfying a "workout" arrangement; or (4) When the APR, fees or finance charges increase due to the consumer not making the required minimum payment within 60 days.

            After the first year of the account, the card issuer can raise a consumer's interest rate, but the higher rate can only apply to new transactions and it cannot exceed the potential interest rate increase previously disclosed to the cardholder.

            The card issuer also must generally provide a 45‑day advance notice of any rate increase or any other significant changes in account terms, up from 15 days. This requirement of the law took effect on August 20, 2009. In that same notice, card issuers must inform consumers of their right to cancel their card before the rate increase or account changes take effect. Consumers who decide to cancel their card will repay at the ''old'' (lower) rate, and they cannot be required to immediately repay the outstanding balance.

            New limits on fees and interest charges: One of the most important changes requires that monthly statements be mailed or delivered at least 21 days before the payment due date, an increase from 14 days. This provides consumers more time to pay the bill before incurring late fees or additional interest charges if there is a grace period. This provision of the law took effect August 20, 2009, and applies to all open‑end credit, including credit cards and home equity lines of credit.

            Improved disclosures: Effective February 22, 2010, credit card issuers must provide new, clearer and more timely disclosures of account terms and costs, both before and after an account is opened.

            Monthly credit card statements: Effective February 22, 2010, monthly credit card statements must include a box showing cardholders how much they have paid in interest and in fees during the current year. Statements must also include details warning consumers about the high costs of making only the minimum payment. Statements must also show the monthly payment amount required to pay off the existing balance in 36 months, including the total cost (payments and interest).  Periodic statements also must disclose, in a prominent location, the due date for the next payment as well as the amount of any potential late fee and the date it would be charged. Statements also must include a notice that one or more late payments may trigger an increase in the interest rate on the account, and they must show the penalty rate.

            Fair deadlines for credit card payments: Effective February 22, 2010, the due date for card payments must be the same day each month. This change is intended to prevent consumers from incurring late fees as a result of accidentally missing a due date because it changes from month to month.

            Restrictions on penalties for going over the credit limit: Effective February 22, 2010, no fees may be imposed for making a purchase or other transaction that would put the account over its credit limit unless the cardholder ''opts in'' for the credit card company to process over‑the‑limit transactions and charge a fee. Furthermore, an over‑the‑limit fee may be imposed only one time during the billing cycle when the limit is exceeded, not for each transaction that exceeds the credit limit.

            Protections for young consumers: Effective February 22, 2010, companies will be prohibited from issuing a credit card to a consumer younger than 21 unless he or she submits a written application that includes the signature of a co‑signer over 21 or information indicating the young consumer has independent means to repay the card debt. Also, companies are restricted from making pre‑screened offers of credit to someone under 21 unless the consumer consents to receive them.