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Credit CARD Act of 2009
by: Sahil | last updated: November 05, 2009
Category: Standard Credit Cards | Tags: Credit card act, laws, credit cards, credit card laws
Category: Standard Credit Cards | Tags: Credit card act, laws, credit cards, credit card laws
The Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD Act of 2009 is a federal law passed by the United States Congress and signed by President Barack Obama on May 22, 2009. It is wide-ranging credit card development legislation that aims “...to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes.” The bill was passed with tremendously soaring, bipartisan support by both the House of Representatives and the Senate
The act aims to protect consumers and credit card holders from malpractices by credit card companies. The bill will go into effect on February 22, 2010 and does not affect existing credit card contacts. The act came into existence due to shady practices carried out by credit card companies and banks in order to increase profits.
There are many ways in which the credit card company can con unsuspecting customers. Some of them include letting the credit card go over the limit so that the consumer has to pay overlimit fees, being ambiguous about interest related definitions, charging interest even after the complete amount is paid off ( double billing cycle), and changing the interest rates suddenly and without notice to the consumers.
All the above mentioned factors have forced the government to take action against banks and credit card companies in the form of this Act which restricts unfair credit related practices by the issuers. This Act is actually an amendment to the Truth In Lending Act which also encourages fair trade practices by lenders.
The Act provides that the consumer shall not be exposed to arbitrary interest rate changes and the credit card company must provide a 45 day notice to the consumer about any interest rate change. Furthermore the Act also empowers those consumers who are hit by an interest rate hike to cancel their credit cards by paying off the debt at the current interest rate within three billing cycles.
The Act also restricts credit card companies from retroactively increasing the interest rates on an existing cards balance if the consumer is in good standing when it comes to transactions related to that card. Moreover, the Fair Credit Reporting Act also prohibits the changing of their policy of any-time, any-place repricing. This means that the credit card company cannot change the terms of their contract with the cardholder in an arbitrary manner.
The act further lays down that those who pay in time cannot be penalized and prevents the double cycle billing. Credit card companies used to charge and still charge something that is known as the residual interest. This interest is payable even after the consumer has paid off the amount in full in a timely manner in the recent past; however the interest is because of one or two missed payments in the past.
This law further restricts the credit card company from using due-date gimmicks and makes it compulsory for them to make the statement available to the customer 21 days before the due date. Moreover, any payment made before 5 P.M EST is to be accepted as paid if paid on the due date. The statement should also have a phone number and a website using which the consumers can pay off their balances.
The law also empowers the consumers by giving them the option of setting a fixed credit limit so that their account does not go over the limit. The credit card company is further bounded by the law to not charge any overlimit fee if the customer has requested a fixed credit limit on the card.
The most important directive that this law gives is that the credit card companies must pay off the high interest rate items before the ones with lower ones. This was exactly the opposite and credit card companies used to pay off lower interest rate items first so that they can pinch interest from the consumer. This means that if you have a Balance of account transfer with a high interest rate pending on the account, then it will be paid off first before any other lower interest rate transaction.
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