Credit Card Accountability and Disclosure Act of 2009

The Credit Card Accountability and Disclosure Act (CARD) was signed into law on May 22, 2009, in response to concerns that predatory credit card companies had been profiting excessively by taking advantage of people who are not very savvy about handling their credit.

At first glance it might seem unlikely that this could be a problem, in that there would be no incentive for a company to extend credit to people who are likely to get in over their head and not be able to pay back what they owe.  But what often happens even with an account that eventually goes delinquent is that a person will charge more than they can afford, pay on the card for months or years as best they can as interest – as well as often various fees for being late, over limit, etc. – is continuously added to their balance.  Even if they eventually throw in the towel and stop paying, they often will have paid back substantially more than they borrowed.

For example, over the years their account was open, perhaps they charged $5,000.  Their payments during that time totaled, say, $7,000, in bits and pieces as they were able to pay.  Yet because of all the interest and fees, they also had a remaining balance of another $2,000 or $3,000 or $5,000 that they never made good on.  Thus although in a sense the credit card company was shorted a substantial amount of money, they still came out ahead on the deal.

There’s a limit to how much you can save people from their own irresponsibility in borrowing more money than they should under poor terms, but the CARD Act does try to counter some of the credit card company tactics that facilitated the kind of irresponsibility from borrowers that they could benefit from.  Among the provisions of the bill, which took effect February 22, 2010, are these:

* Billing statement must clearly state how much a person would end up paying and how long it would take if they made the minimum payment each month.

* Billing statement must clearly show late payment deadline and postmark date.

* Payments received by 5 PM on the due date must be counted as being on time.

* Retroactive interest rate increases banned except when a person is more than 60 days late.

* After an interest rate increase for being late, any time a person is on time 6 consecutive months, the previous interest rate must be reinstated.

* Interest rate cannot be increased within the first 12 months unless starting rate is clearly identified as a temporary promotional rate.  Any such introductory promotional rate must last at least the first 6 months.

* Universal default and double cycle billing no longer allowed.

* 45 day advance notice required for any significant changes in terms.

* A person must be given the option of having over limit charges denied, or accepted with a fee, rather than have them automatically accepted and a fee imposed.

* Bills must be mailed at least 21 days before the due date.

* Gift cards cannot expire for at least the first 5 years, and if they do expire after that, this must be clearly disclosed to the purchaser.

* Gift card inactivity fees may not be imposed for inactive periods of less than a year, and must be clearly disclosed to the purchaser.

* Any person under 21 cannot be sent credit card offers unless they have opted in for such offers, cannot be issued a credit card unless they show proof of a reasonable income to repay what the card allows them to borrow or have an adult co-signer, and cannot later increase the limits on a credit card without the approval of their adult co-signer.

The CARD Act is open to criticism from both left and right.  On the one hand, it can be argued that the added safeguards are insufficient.  You’ll notice as a glaring omission, for instance, that no new cap is put on interest rates.

But from the other side, some argue that the restrictions placed on credit card companies are excessive and will have unintended deleterious consequences.  Why?  Basically because in trying to paternalistically protect people who borrow more than they should, don’t read the fine print in the credit card agreements they’re signing, don’t shop around intelligently for cards with better interest rates and terms and such, the CARD Act pushes credit card companies to make up for those lost profits by increasing their rates and fees for everyone, and doing away with or lessening advantageous perks and promotions.  Thus all credit card consumers collectively end up paying more because the credit card companies are blocked from making as much money as they used to be able to from the people who use credit irresponsibly.