Credit Card Accountability Responsibility and Disclosure Act of 2009

The House of Representatives and the Senate approved bills to amend the Consumer Credit Protection Act.  The bill, known as the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Credit CARD Act”) is intended to ban abusive credit practices, enhance consumer disclosures, protect underage consumers, and provide some additional moral fortitude to the credit card industry. As always, if you have any questions regarding the details of the Credit CARD Act, or any other question pertaining to your personal or corporate finances, do not hesitate to call me directly at 240-499-2075 or send me an email at BGreenfest@SantosPostal.com.

The key facets of the bill include:

Change of Interest Rate:

a) A credit card company must provide 45 days notice if it intends to change the debtor's interest rate.
b) The change in interest rate will apply to all future balances, and cannot be retroactively charged to existing balances, unless the borrower is more than 60 days past due on their payment.
c) Debtors can close or cancel the credit card and the old rate will remain in effect for all prior balances.

Opt Out of Over the Limit Charges:

a) A consumer can notify their credit card company that they do not want to be approved for over the limit transactions.
b) If a credit card company is notified of the above, it cannot charge any fees for over the limit transactions, even if it inadvertently allows an over the limit transaction to occur.

Method of Payment:

a) Consumers can pay their credit card bill by any payment method – i.e., check by mail, electronic, phone payment, etc.
b) A credit card company cannot charge a fee for any method payment is received.

Payment Applications:

a) Payments must first be applied to card balances that possess the highest interest rate.
b) Thereafter, payments must be applied as to minimize the total finance charges to the borrower.

Length of Billing Period and Late Payments:

a) Credit card companies must mail bills to consumers at least 21 days prior to the due date. This extends the billing period by 7 days.
b) Deadline dates must be conspicuously provided for when a payment is due and when a payment is deemed late. Dates regarding late payments are tied to postmark dates.


Protection of Young Consumers:

a) Must be 21 years old to obtain a credit card unless your parents or legal guardian approves and co-signs for the credit card.
b) If you are over 18 years old, but under 21 years old, you can still obtain a credit card if:

i. Your personal financial information shows a means of repayment, or
ii. You complete a financial literacy or educational course designed for young consumers.

The above changes fall in the category of common sense. The bill will take effect nine months after it is signed into law, which is anticipated to be prior to the end of May 2009. Therefore, it will be effective as of February 2010.

What will happen if you pay your credit card bill in full and prior to the due date every month? You will still be allowed to use your credit card as a form of float; and, you will not be charged any interest for this convenience. However, all legislation comes at a cost. You may see a reduction in frequent flyer miles or other “point” benefits that were attached to your credit card, a reduction or elimination of rebates, higher fees to maintain a card, and higher interest rates associated with a card, should you pay late or maintain a balance. Of course, the credit card industry is highly competitive, which usually places pressure on pricing. It will be interesting to see how the cost issue plays out.

Credit card companies have already started to increase interest rates in anticipation of this legislation. Obtaining a new credit card may become more difficult that it used to be to get a credit card. I am anticipating that pawn shops, pay day advance stores, car title loan shops, and alternative forms of obtaining credit will be growth industries.

And, one last amendment was attached to the Credit CARD Act. Senator Tom Coburn of Oklahoma inserted a rider in the bill to allow firearms in national parks and wildlife refuges. If you’re asking what this amendment has to do with credit cards, that’s a very good question because it has nothing to do with credit cards; merely politics (which also comes at a very high cost).