Credit CARD Act of 2009:
The Changes and When They Take Effect
Carrie Johnson, family and consumer sciences Extension educator, Charles Mix County
Elizabeth Gorham, Extension family resource management specialist, SDSU
Beginning in August 2009, there will be February 22, 2010
changes that affect consumer credit card • Retroactive rate increases
billings. On May 22, 2009, President Barack o Issuers cannot raise rates on existing
Obama signed the Credit Card Accountability, balances unless the cardholder is 60 days
Responsibility and Disclosure Act of 2009 or more past due.
(Credit CARD Act of 2009). The law is o Companies cannot raise a consumer’s rate
designed to protect consumers from some just because the consumer was late in
practices by credit card companies. The paying on an unrelated account (which
following is a summary of the changes and was previously allowed under a Universal
when they will take effect: Default provision).
o Rates cannot be raised in the first year
August 20, 2009 after issuance, and teaser promotional
• More advanced notice of rate hikes rates must remain in effect for at least 6
o Cardholders will receive a 45-day months.
notice before key contract changes o What the provision does not do:
take effect. The contract changes − If an issuer provides a 45-day notice,
include interest rates, fees, or finance the provision does not prevent the
charge increases. raising of rates on new balances at any
o What the provision does not do: time for any reason.
− The provision does not apply to • Fee restrictions
credit limit changes or interest rate o Companies accepting a credit card for
caps. This means that, if the credit payment will have to get the customer’s
card company cuts a consumer’s permission to exceed the customer’s
credit limit, the consumer could credit limit. There can be only one over-
still be charged a penalty. limit fee per billing cycle.
• More time to pay o Companies are not allowed to charge a fee
o Credit card companies must send to customers who elect to pay their bill
statements to consumers 21 days on-line or by telephone. However, a fee
before a payment is due. Current (pre- can be charged to expedite a payment.
Credit CARD Act of 2009) laws o Payments received by the due date, or the
require only a 14-day notice. next business day if the bank does not
• Retroactive rate increases
accept mailed payments on the due date, will
o If the cardholder triggers the default rate
not trigger a late fee. If the cardholder pays at
because of a 60-day delinquency, the
a local branch, the payment must be credited
bank must restore the lower rate once the
on that day.
cardholder makes 6 consecutive on-time
o For subprime-rate cards, in the first year,
payments. It may be wise to keep records
non-penalty fees cannot take up more than
of the interest rate paid on your credit
25% of the initial credit limit.
card bill so that you can verify the
• Restricts cards to students
previous rate charged.
o Cards will not be issued to consumers ages
18-21 who do not have adequate income, a Because most of the provisions of the Credit
co-signer, or do not complete a certified CARD Act of 2009 do not take effect for a while,
financial literacy course. many credit card companies are currently trying to
• Ends double-cycle billing make up for future loss of income. Take a close
o The new law bans double-cycle billing (often look at your credit card statement(s): Has your
referred to as the two-cycle average daily interest rate increased? Are you being charged
balance computation method), the practice of new, additional fees? Perhaps now is the best
basing finance charges on both the current time for you to evaluate your credit card use and
and the previous balance. need.
• Fairer payment allocation
o Payments made over the minimum balance REFERENCES
due will automatically be applied to the debt McFadden, L. 2009. “8 major benefits of new credit
with the highest interest rate first, instead of card law.” Bankrate.com. Retrieved July 2, 2009
to the last debt transferred (which will enable from http://www.bankrate.com/caf/news/cc/
you to pay less in interest and get out of debt Office of Thrift Supervision, Department of the
faster). Treasury Memorandum. 2009. “Credit CARD
Act of 2009: Effective Dates. Retrieved July 8,
August 22, 2010 2009 from http://files.ots. trea”s.gov/25308.pdf.
Prater, C. 2009. “What the new credit card law means
• Gift card protection
for you.” Retrieved July 2, 2009 from
o The new law prohibits gift cards from http://www.creditcards.com/credit-card-
expiring for the first 5 years. The issuer can news/help/what-the-new-credit-card-rules-mean-
no longer assess inactivity fees unless the 6000.php.
Trejos, N. and P. Clark. 2009. “Change is coming to
card has not been used for 12 months.
your wallet.” The Washington Post (Washington
o What the provision does not do: D.C.). Retrieved July 2, 2009 from
− There is no 5-year guaranteed if the http://www.washingtonpost.com/wp-
company should go out of business, so it’s dyn/content/graphic/2009/05/26/GR20090526009
best to use a gift card as soon as possible.
Adopted with permission from South Dakota State University www.extension.purdue.edu/money