Credit Card Accountability, Responsibility, and Disclosure Act

What Is the Credit Card Accountability, Responsibility, and Disclosure Act of 2009?

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 is a federal law designed to protect credit card users from abusive lending practices by card issuers. Commonly known as the CARD Act, this law's primary goals are the reduction of unexpected fees and improvements in the disclosure of costs and penalties.

Understanding the Credit Card Accountability, Responsibility, and Disclosure Act of 2009

The U.S. Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act in May 2009, and President Barack Obama signed it into law shortly afterward. It took effect in 2010.

Expanding on the Truth in Lending Act (TILA), the CARD Act was designed to protect consumers from the unfair practices of credit card issuers. It aims to eliminate or lower certain credit card charges, minimize manipulation of younger customers, and provide greater disclosure of fees to all users.

Before the act's passage, the language in credit card agreements was often quite opaque and literally difficult to read; important terms were buried in reams of legalese, and the information provided was inconsistent among different issuers, making it hard for consumers to compare products. The act has made the language, terms, and disclosure of penalties and fees much more transparent, both in the initial card agreements and in monthly statements.

The Consumer Financial Protection Bureau (CFPB) is responsible for developing, implementing, and enforcing the rules to which card issuers must comply. In the first four years of the CARD Act’s existence, the CFPB in a 2015 report found that the law had led to an overall decrease in the cost of consumer credit by two percentage points. Over-limit fees had been almost completely eliminated, and the average late fee dropped from $35 to $27.

Provisions of the Credit Card Accountability, Responsibility, and Disclosure Act

A series of guidelines written by Congress, the CARD Act is divided into five sections.

Some highlights of the provisions include:

• The act limits charges on universal default, which refers to the practice of applying higher interest rates to all future balances in the wake of a late payment. The act limits this practice in a cardholder’s initial period and mandates greater advance warning of interest-rate hikes.
• The act requires that issuers inform cardholders how long it will take to pay off an existing balance if they just pay the card minimum each month.
• The act prohibits many forms of marketing targeted at young consumers, such as merchandise giveaways on college campuses ("free stuff—all you have to do is sign this application…").
• The act limits fees and expiration dates on gift cards and non-reloadable prepaid cards.
• The act does not permit a credit card company to allow an account to go over its limit and then charge the customer a fee for doing so. Customers now have to be given the choice whether to "opt in" to over-limit charges on their credit card account. If they decline to opt in, they will have their cards declined when a proposed charge or withdrawal would put the balance over the limit.
• The act mandates that statements be mailed or put online no later than three weeks before the payment due date and that due dates be consistent (unless changed by the cardholder).

Shortcomings of the CARD Act

Since its passage in 2009, consumer advocates have argued that the law does not go far enough in prohibiting abusive or unfair practices. Some interest rate increases, such as those resulting directly from Federal Reserve rate hikes or from the end of an introductory period, remain allowable without advance notice from card issuers. Deferred interest charges, or charges compiled retroactively at the end of an introductory interest-free period, are still allowed under the law. Perks used to market cards, such as identity-theft protection, rewards programs, or penalty-free grace periods, remain generally unregulated as well. The law also fails to regulate cards issued in the name of a business.

Financial industry groups also criticize the law for driving up interest rates and annual fees; they also claim it's forced card issuers to lower card credit limits and increase customer qualifications, making it difficult for people with uneven or limited credit histories to obtain credit cards that will cover their needs.