|
Credit
Card Rules Passed to Protect Consumers Impact Institutions
On May 22, President Obama
signed the Credit Card
Accountability Responsibility and Disclosure Act of 2009 (the Credit
CARD Act) (H.R. 627) which shields consumers from certain
interest rate hikes and other fees. It is the culmination of the
work begun with the proposed Credit Cardholders’ Bill of Rights Act. The Credit CARD Act was
not without controversy since many in the financial services
industry believe this will fundamentally change the credit card
business. In fact, some believe it will make credit more difficult
to obtain and lead to annual fees and higher interest rates for all
cardholders.
Be that as it may, most
provisions of the Act will go into effect in February 2010. The
provisions that require notice before interest rates are increased
and those that affect statement delivery go into effect August 20,
2009.
Also, it important to note
that the section requiring the statement to be mailed 21 days prior
to the payment due date applies to all
open-end credit card transactions, not just credit cards.
A summary of the Act includes
the following:
·
Prevents Unfair
Increases in Interest Rates and Changes in Terms – this
section requires periodic review by the card issuer when a
cardholder’s interest rate is increased; prohibits raising rates
in the first year after the account is opened; prohibits arbitrary
interest rate increases and universal default on existing balances;
and requires promotion rates to last at least six months.
·
Prohibits
Exorbitant and Unnecessary Fees – prohibits issuers from
charging a fee to pay a credit card debt; prohibits issuers from
charging over-limit fees unless cardholder can complete over-limit
transactions; requires penalty fees to be reasonable; and enhances
protections against excessive fees on low-credit, high-fee credit
cards.
·
Requires
Fairness in Application and Timing of Card Payments – requires
payments in excess of minimum to be applied first to the card
balance with the highest rate of interest; prohibits issuers from
setting early morning payment deadlines; and requires statement to
be mailed 21 days before the bill is due rather than the current 14 (note: unless this change is made by August 20, 2009, the institution
cannot charge a late fee for any reason). Additionally, note that
this provision also applies to all open-end credit transactions.
·
Protects
the Rights of Financially Responsible Credit Card Users – prohibits
interest charges on debt paid on time; prohibits late fees if issuer
delayed crediting the payment; requires that payment at local
branches be credited on the same-day; and requires card companies to
consider consumer’s ability to pay when issuing cards or
increasing limits.
·
Provides
Enhanced Disclosure of Card Terms and Conditions –
requires 45 days notice of interest rate, fee and finance charge
increases (note:
this part is effective August 20, 2009); requires
issuers to provide disclosures upon card renewal and when card terms
have changed; requires issuers to provide consumer account
information and to disclose the period of time and total interest it
will take to pay off card balance if minimum payments are made;
requires full disclosure in billing statements of due dates and
applicable late payment penalties.
·
Strengthen Oversight of Credit Card Industry Practices – requires
card companies to post agreements on the Internet and provide those
to the Federal Reserve Board (FRB)
to post on its website; requires the FRB to review the consumer
credit card market, including terms of agreements, practices of
issuers and the cost of availability of credit to consumers; and
requires the Federal Trade Commission rulemaking to prevent deceptive marketing
of free credit reports.
|
