Definition
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 is a comprehensive piece of legislation enacted by the United States Congress to implement significant reforms in the credit card industry. The primary goal of the CARD Act is to protect consumers from potentially unfair and deceptive practices by credit card issuers, including unexpected interest rate hikes, hidden fees, and other exploitive practices. The legislation fully took effect in February 2010.
Detailed Explanation
The CARD Act introduces a variety of measures aimed at enhancing transparency and fairness in the credit card industry, including, but not limited to:
- Interest Rate Increases: Credit card issuers must provide a 45-day advance notice before increasing interest rates, and rate hikes generally cannot be applied to existing balances.
- Fee Restrictions: The Act imposes caps on certain fees, such as over-limit fees and late payment fees.
- Payments: Mandates that any payment above the minimum must be applied to the balance with the highest interest rate first, reducing overall finance charges.
- Consumer Disclosures: Requires clear and concise disclosures regarding the terms and conditions of credit agreements so consumers can understand the full cost of their credit.
- Billing Statements: Mandates that billing statements be sent at least 21 days before the payment due date, giving consumers adequate time to review and make payments.
- Protections for Minors: Places restrictive age requirements and income verification processes for consumers under the age of 21 seeking credit cards.
Examples
Example 1: Interest Rate Hikes
Before the CARD Act, credit card companies could suddenly hike interest rates on existing balances, leaving cardholders with unexpected higher payments. The Act requires a 45-day notice for any changes to the interest rate.
Example 2: Over-limit Fees
Previously, cardholders could often be charged over-limit fees without explicit consent. The CARD Act prohibits such fees unless cardholders opt-in to over-limit processing.
Example 3: Minimum Payment Application
Cardholders making payments above the minimum could see their payments applied to balances with the lowest interest rates. Post-CARD Act, such additional payments are applied to the highest interest rate balances first.
Frequently Asked Questions (FAQ)
What protections does the CARD Act provide against hidden fees?
The CARD Act places caps on certain fees, requires opt-in consent for over-limit fees, and mandates clearer disclosures in billing statements to minimize hidden or unexpected fees.
How does the CARD Act impact interest rate increases on existing balances?
The Act prevents issuers from retroactively increasing interest rates on existing balances. Rate hikes can now only apply to new transactions, provided a 45-day advance notice is given.
Are there any specific protections in the CARD Act for young adults?
Yes, consumers under the age of 21 must either provide proof of income or have an adult cosigner to obtain a credit card. This aims to protect young adults from accumulating debt they may not be able to manage.
Does the CARD Act require credit card companies to provide clearer billing statements?
Indeed, the CARD Act requires that billing statements be easily understandable, outlining the effects of making minimum payments and how long it would take to pay off the balance if only minimum payments are made.
Related Terms
APR (Annual Percentage Rate)
The annual rate charged for borrowing, expressing the yearly cost of funds over the term of a loan or credit.
Credit Score
A numerical expression based on a level analysis of a person’s credit files, used to represent the creditworthiness of the individual.
Billing Cycle
The interval of time between the end of one billing statement date and the next, often monthly.
Minimum Payment
The smallest amount a consumer is required to pay on their credit card statement to remain in good standing.
Online References
Suggested Books for Further Studies
- “Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score” by Anthony Davenport
- “Credit Repair Kit for Dummies” by Steve Bucci
- “The Everything Personal Finance in Your 20s & 30s Book” by Howard Davidoff
Fundamentals of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009: Financial Regulation Basics Quiz
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