What is a 'Cardholder Agreement'

A cardholder agreement is a document that a credit card holder receives detailing the terms and agreements of the card. A cardholder agreement describes the annual percentage rate (APR) paid by the cardholder, the calculation behind minimum payments and the rights of the cardholder when disputes arise.

The agreement includes the terms for all fees, such as an annual fee, a balance transfer fee, charges for closing an account, late payment and over-the-limit fees as well as any additional penalties. The agreement also outlines policies regarding any perks, such as airline miles or cash back.

BREAKING DOWN 'Cardholder Agreement'

U.S. federal law under the Truth-in-Lending Act (TILA) and Regulation Z require cardholder agreements. These regulations mandate that credit card issuers submit their cardholder agreements to the Bureau of Consumer Financial Protection. 

The credit card issuer must disclose the terms of the card accurately and without misleading statements. In the past, courts have ruled in favor of consumers when the issuer made exaggerated claims in its advertising that it did not fulfill, even though the cardholder agreement stated the less-than-advantageous terms. These agreements describe the rights and obligations of both the credit card holder and the credit card issuer.

What’s Inside of a Cardholder Agreement

The details of cardholder agreements vary by issuer, but in general, they contain similar information. An average cardholder agreement allows the holder to use a credit card to buy goods and services, transfer a balance, get a cash withdrawal, pay for recurring transactions and make foreign purchases. It almost always outlines fees assessed for these transactions. For example, issuers usually charge a flat fee for cash withdrawals, or for transactions in a foreign country.

Cardholder agreements also outline the terms and conditions under which the issuer can close suspend a user’s account. It explains the holder’s payment obligations, including the length of the grace period is, how to make payments and the obligation to make at least the minimum payment on each statement.

The cardholder agreement also explain how to avoid incurring late fees, over-the-limit fees, returned payment fees, and the penalty APR. This information protects the consumer from incurring extra fees and potentially damaging their credit due to a lack of information about how to stay current on their payments.

Perhaps most importantly, a cardholder agreement includes an interest and fees table that shows the APR for carrying a balance on purchase. This is the most basic cost associated with any credit card.

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