On May 22, 2009, the Credit Card Accountability Responsibility and Disclosure Act was promulgated by President Barack Obama.â¦
On May 22, 2009, the Credit Card Accountability Responsibility and Disclosure Act was promulgated by President Barack Obama. You don’t need to remember this long title as it is also known simply as the CARD Act of 2009.
CARD was implemented in three stages, but much of the legislation came into effect on February 22, 2010. Whether you didn’t know CARD or just didn’t know what credit looked like, I’m ‘I’ll sort this out for you right away.
Sometimes you don’t appreciate the present until you look back and see how bad things were. So let’s jump on this train of thought and see what it was then and what it is now.
Up to the front:
– What credit card issuers could do before the CARD Act.
– Consumer protection through the Credit Card Act 2009.
– What the CARD law does not do.
– Why you should know the Credit CARD Act.
What credit card issuers could do before CARD law.
I’ve been in the credit business for a long time so I remember how crazy and unregulated the credit card business was.
Before the CARD law, financial institutions could:
Increase your interest rate at will. There was no rule to warn you, and you didn’t even have to be right. And issuers could raise rates on your existing balances, not just on new purchases. This is called a âretroactive increase in interest ratesâ.
Imagine if the economy got out of control and scared your transmitter off. So that increased your annual percentage rate from 14% to 20%. Let’s say you had a balance of $ 5,000 at 14%. After the rate increase, you would have a balance of $ 5,000 at 20%. It’s easy to see how retroactive interest rate hikes could lead to debt disaster.
Charge unfair fees. There were over limit charges, which occurred because the issuer allowed cardholders to exceed their limits, but then charged those cardholders a fee for doing so. It’s like telling your teenager that she can stay outside for as long as she wants and then punishing her for missing her curfew.
There were also no guidelines for late fees or for âfee harvestâ cards (cards that charge expensive fees). Sometimes you didn’t know there were charges until they appeared on your statement.
Make the fine print impossible to understand. I know what you are thinking. It is still difficult to understand. But, believe me, at the time it was difficult to determine what the fees and rates were. And even the websites were often unclear.
Target young consumers. Often, transmitters would set up a table on college campuses and students were offered free gifts to enroll in credit card. Want a free pizza? Sign up here for your new credit card!
These students would have no idea what they were getting into. There were also no income requirements that issuers had to comply with.
Now let’s see what the CARD Act actually did for consumers.
[Read: Best Student Credit Cards.]
Consumer protection due to the Credit Cards Act 2009.
There is still room for improvement, but thanks to the CARD law, financial institutions must follow these rules:
No sudden (or arbitrary) change in interest rates. During the first year, issuers can only change your APR if certain conditions are met, for example if you are 60 days late on your account or if there is a change in the prime rate and you have a variable APR.
If your rate increases, issuers must notify you at least 45 days before the rate changes. And retroactive rate increases on existing balances are not allowed unless the cardholder meets certain conditions, such as a 60-day late payment. Do you see a trend regarding late payments? It is really important to pay your bills on time.
No more unfair fees. Issuers are required to ask you to register if you want to be able to exceed your credit limit. This will always trigger an over limit charge. But at least you’ll know it’s going to happen if you sign up. By the way, don’t sign up. Giving yourself permission to exceed your credit limit is a one-way ticket to getting into debt (and credit rating, too much).
There are also limits on late fees and, thank goodness, on harvest fee cards. The issuers of these, which target at-risk consumers, now require that upfront fees, such as annual fees and application fees, cannot exceed 25% of the original credit card limit in the first year. . This is important because some of these cards have APRs of around 36%.
Offer more time for grace periods. The issuer must mail (or send electronically) your statement at least 21 days before the due date. This gives you time to plan your payment before the due date. There are also restrictions on payment issues, such as when the due date falls on a weekend or a public holiday. If the consumer pays on the next working day, this cannot be considered as late payment.
Create more transparent disclosures. Have you noticed that your statement contains a warning about what happens if you only make the minimum payment? You can see how long it will take to pay off your balance this way.
There is also a section on your statement that shows how much you have to pay per month to pay off your debt in three years, including the amount of interest you would pay. Note that this information assumes that you will not make any new purchases with the card until your balance is paid.
Issuers are also required to have cardholder agreements available for review on the credit card website. Sometimes you still have to really look for the rates and fees, but at least they’re actually there. It is clear that there is still work to be done in this area, but it is so much better than before the CARD law.
Stay within the guidelines for young consumers. One of the best things about CARD is the protection afforded to young adults. If you are under 21, you need to be able to prove that you have enough income to pay off your debt in order to get a credit card.
Also, if you are not yet 21, you need the signature of a parent or legal guardian to get a credit card. Note: For the co-signer, this is a joint and several liability. And issuers are not allowed to give gifts for the subscription to a credit card.
What the CARD law does not do.
While CARD deals with grace periods, it does not require an issuer to offer you a grace period at all. It only requires the 21 day timeframe if the issuer offers a grace period. So be sure to confirm that there is a grace period when looking for new cards. The absence of a grace period is still unlikely, but it does sometimes appear in the subprime credit card market.
The CARD Act also does not provide consumer protection for small business credit cards. So if you are using these cards, be sure to pay attention to all emails, text messages and even post mail from your issuer. Don’t be surprised by rate increases or changes to your credit card terms.
Some large banks extend CARD Act protections to customers with business credit cards. But it’s still important to stay in the know because banks don’t have a legal obligation to offer consumer protections under the CARD Act on business credit cards.
Also, keep in mind that the Credit Card Act of 2009 does not limit high interest rates. The rate limits are determined by the usury laws specific to each state.
Why You Should Know The Credit Cards Act.
OK, things aren’t perfect, but think about how much better your credit life is now thanks to the CARD Act. The law also established new guidelines for gift cards and prepaid cards, which were necessary. And there are rules for universal default, double billing, attribution of payments that exceed the minimum payment when you have multiple APRs with a single credit card, and much more.
The CARD Act has given you a lot of protections for consumers. If your transmitter breaks any of the rules, stand up and say something. If you do not make any progress after reporting the illegal behavior to your transmitter, contact the Consumer Financial Protection Bureau and file a complaint. And persevere until the problem is solved.
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