Credit Card Act 2010
After years of complaints from consumers who howled about usurious interest rates, fines, manipulation and other unsavory business practices, Congress took action and passed legislation to protect consumers against the predatory lending practices of credit card companies. President Obama signed the Credit Card Accountability Responsibility and Disclosure Act, or Credit CARD Act, into law on May 22, 2009.
The Credit Card Act introduced many different measures to protect consumers from being gouged by the credit card companies. And rightly so since, let's face it, not everyone uses credit responsibly or understands the repercussions of missing a payment or going over his or her credit limit. Because credit card applications have print so fine that it takes a scanning electron microscope to see it, the Credit Card Act provides enhanced consumer disclosures such as:
- Spelling out precisely how long it will take a borrower to pay down a debt if they only make the minimum payment each month
- Clearly shown payment due dates and postmark dates on statements
- How much it will cost in interest and principal payments if a borrower only pays the minimum each month
Consumer Protections in the Credit Card Act
The Credit Card Act contains many different consumer protections to prevent borrowers from falling victim to some of the more egregious predatory lending practices. Anyone who has been late with a payment, even once, knows what some of these predatory practices are and how much they sting financially. Some of these new protections include:
- Credit card companies may not impose a retroactive interest rate unless a consumer is more than 60 days late with a payment
- A lender must review a client's account six months after increasing their interest rate and return the rate to its previous level if the borrower has made on-time payments
- Interest rates cannot be increased on an account within the first 12 months, and the promotional rates that companies try to lure accounts with must last six months at the minimum
- Universal default (the practice of hiking a borrower's interest rate even though they were late making a payment on an unrelated account), and double-cycle billing (the practice of waiting to post a payment until very late in the next payment cycle to maximize monthly interest charges) are not allowed
- Credit card statements must be sent out no later than 21 days before payment is due
The Credit Card Act also introduces many consumer protections for young consumers under 21 years of age who were a major profit center for credit card companies. The Act also contains language to protect consumers from unfair practices involving gift cards. Gift cards are now required by law to remain active for at least five years from their activation date, and issuers may not impose dormancy or inactivity fees against a card if used once in the previous 12-month period.
Before the Credit Card Act was passed, credit card issuers reacted to the impending legislation with predictable compassion for their clients. They raised rates and fees while it was still open season on cardholders. Now, consumers have a great many more protections against these practices. However, it's important to remember that even though borrowers have more protections, it is still very easy to get into credit card debt and consumers need to be vigilant about managing their credit.