What Is the Credit CARD Act of 2009? - Experian (2024)

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In this article:

  • Why Was the CARD Act Enacted?
  • How the Credit CARD Act Protects Consumers
  • What the Credit CARD Act Doesn’t Cover

Although it's been over 10 years since it passed, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) remains one of the most significant pieces of legislation regulating and reforming the credit card industry. It covers everything from what card issuers must consider when reviewing an application to how they charge interest and what fees they can charge.

Why Was the CARD Act Enacted?

Congress passed the CARD Act in 2009 to "establish fair and transparent practices related to the extension of credit." In the years before the law, many people felt that the credit card industry engaged in abusive and deceptive practices that unnecessarily harmed consumers. For example, they could raise your interest rate on current balances without notice or reason, and process your payments in a way that favored the card issuer.

Less than five years after many of the law's provisions went into effect, the Consumer Financial Protection Bureau (CFPB) reported that the law had helped consumers save over $16 billion in over-limit and late payment fees. The savings have continued to stack up, although late fees still cost cardholders more than any other type of fee.

How the Credit CARD Act Protects Consumers

The CARD Act includes a wide range of consumer protections, mostly related to interest rates, fees, disclosures and marketing toward young adults. The most notables changes include:

No Interest on Paid-Off Balances From Previous Billing Cycles

The CARD Act prohibits a practice called double-cycle billing, which is when credit card issuers would charge you interest based on the average daily balance from the previous two billing cycles. Today, credit card issuers can only charge interest on balances from the current billing cycle, which means you won't have to pay interest on debt you've already paid off.

If you've carried a balance and then pay your bill in full, you might notice you get charged some interest on the next bill. However, that's the residual interest that accrued between when you received your last bill and when you paid it.

Limitations on When Card Issuers Can Raise Your Interest Rate

Before the law, card issuers could raise your rate without reason or notification. Under the CARD Act, card issuers can't raise your interest rate during the first 12 months you have a card. After that, they have to send you a notice at least 45 days before an increase and have a reason for the increase; the increase will only affect new purchases. The issuer also must reevaluate your account every six months and decrease your rate if the reason for the increase no longer applies.

There are still exceptions, though. For instance, variable rates can automatically increase if benchmark rates rise or a promotional interest rate ends. Card issuers can also raise your rate if you don't make minimum payments for 60 days, but they can't raise your rate because you missed payments on a different credit account.

Fewer and Capped Fees

The CARD Act also places limits and eliminates various credit card fees.

  • A limit on fees during the first year: Once your account is open, card issuers can't charge you fees that add up to more than 25% of your card's credit limit. These can include annual, monthly and activation fees. However, the cap doesn't apply to late fees, over-limit fees and returned payment or insufficient funds fees.
  • Limited over-limit fees: You now have to opt in to allowing your balance to go over your credit limit. If you don't opt in, card issuers can let your balance go over your limit at their discretion, but they can't charge you an over-limit fee. As a result, most credit cards don't have over-limit fees anymore.
  • Caps on late and over-limit fees: There are caps on how much card issuers can charge if you miss a payment or go over your credit limit (if you opted in). The amount gets adjusted each year based on inflation, and a slightly higher fee can apply to a second incident within a six-month period.
  • No pay-to-pay or inactivity fees: Card issuers can't charge you a fee for choosing a specific payment type, such as paying by phone or online, unless you request an expedited payment. They also can't charge you a fee if you don't use your card or a monthly maintenance fee if your account is closed.

You Have at Least 21 Days to Pay Your Bill

Card issuers must mail or deliver your bill at least 21 days before the bill is due. Additionally, if they offer a grace period, it has to be at least 21 days long. With a grace period, you won't pay any interest on your purchase balance between the end of your billing period and the due date.

You can generally maintain your grace period and avoid paying interest on purchases by paying your bill in full each month. The CARD Act also requires your payment date to be on the same day of each month, or the next business day if that falls on a Sunday or holiday. The issuer also has to process any payments that it receives by 5 p.m. the same day.

Payments Must be Applied in a Way That Favors Cardholders

Many credit cards have different annual percentage rates (APRs) for purchase, balance transfers and cash advances. The CARD Act limits how much interest you'll pay by requiring card issuers to apply any payment amounts over your minimum payment due to the balance with the highest interest rate. However, it can still choose how to apply your minimum payments.

Added Disclosures for Cardholders

Credit card companies also have to include certain disclosures on your monthly statement, such as how long it will take to pay off your balance if you only make minimum payments, and how much you'll need to pay each month to pay off your balance in three years.

Introduced Protections for Young Adults and Students

The CARD Act prohibits issuers from granting new accounts to anyone under 21 years of age unless they have a cosigner who is over 21 years old or enough independent income to afford the credit card payments. The law also limits how credit card issuers can advertise their cards to college students and prohibits card issuers from giving them gifts for applying for or using a credit card.

Issuers Have to Consider Your Ability to Pay

Even if you're over 21 years old, credit card issuers have to consider your ability to afford credit card payments before approving your application. The original rule was amended in 2013 to allow card issuers to consider a household's total income to avoid harming stay-at-home spouses and partners who don't have an individual income.

New Rules for Gift Cards

While it focuses on credit cards, the CARD Act also prohibits gift cards, gift certificates and general-use prepaid cards from expiring within five years of when you activate the card. It also forbids inactivity fees unless the fee is clearly disclosed and the card is inactive for at least 12 months.

What the Credit CARD Act Doesn't Cover

While the reforms continue to help consumers, the CARD Act doesn't cover every type of credit card, and some cards still have potentially costly terms. Some notable exemptions are:

  • Small business and corporate credit cards: The CARD Act only applies to consumer credit cards. Corporate cards and small business cards are exempt, although card issuers can voluntarily add similar protections to their cards if they want.
  • Maximum interest rates: The CARD Act doesn't limit the maximum APR that credit cards can charge. However, state and other federal laws may apply, such as the Servicemembers Civil Relief Act (SCRA), which limits card issuers from charging active-duty service members an interest rate over 6% on their pre-service debt.
  • Deferred interest promotions: Some credit cards have deferred interest offers, which give you a low or no interest rate during a limited promotional period. However, if you don't pay off the balance before the period ends, you have to pay all the interest that would have accrued. With other promotional rates, you generally only pay interest on the remaining balance.

Consumer behavior has also significantly changed since the CARD Act was passed, and many cardholders now manage their credit cards through their online account or app. There's some concern that this keeps cardholders from regularly checking or reading their statements and the included disclosures. They may even miss the notice that their statement is ready or the bill is due, leading to accidental late payment fees.

The Bottom Line

The Credit CARD Act of 2009 helps protect cardholders from many of the costly practices that were common before the law went into effect. However, credit cards still tend to have high interest rates compared to other types of debt. If you have or are considering opening a credit card, compare credit card offers to figure out which card might be a good fit and try to avoid carrying a balance on your card.

What Is the Credit CARD Act of 2009? - Experian (2024)


What Is the Credit CARD Act of 2009? - Experian? ›

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) established various protections for cardholders, including limitations on how and when card issuers can charge you interest and fees.

What did the Credit Card Act of 2009 do explain? ›

The Credit Card Accountability Responsibility and Disclosure Act of 2009 is a consumer protection law that was enacted to protect consumers from unfair practices by credit card issuers by requiring more transparency in credit card terms & conditions and adding limits to charges and interest rates associated with credit ...

What was the Credit Card Act trying to solve? ›

The Credit CARD Act of 2009 was intended to prevent practices in the credit card industry that lawmakers viewed as deceptive and abusive. Among other changes, the Act restricted issuers' account closure policies, eliminated certain fees, and made it more difficult for issuers to change terms on credit card plans.

Which of the following is not true about the Credit Card Act of 2009? ›

The answer is d. No impact on consumer credit scores. The Credit Card Act of 2009 did not have any direct impact on consumer credit scores. This legislation primarily focused on addressing deceptive practices by credit card companies and providing more protections for consumers.

Who does the card act apply to? ›

Consumers can apply for credit cards starting at age 18, but the law prohibits issuing cards to those under 21 unless they have an independent income or a co-signer.

What are the three provisions of the Credit Card Act of 2009? ›

This Act (a) amends the Truth in Lending Act to prescribe open-end credit lending procedures and enhanced disclosures to consumers, limit related fees and charges to consumers, increase related penalties, and establish constraints and protections for issuance of credit cards to minors and students (numerous sections); ...

What is under the Card Act of 2009 quizlet? ›

The CARD Act requires people under age 21 to have a parent or other adult who is at least 21 years old cosign the credit card if they can't demonstrate an independent source of funds sufficient to repay any debts incurred with the credit card.

What new restrictions did the Credit Card Act of 2009 impose? ›

The CARD Act adds to the Federal Reserve's rules, for example, by requiring 60 days' delinquency rather than 30 days' for imposition of penalty rates, mandating that all excess payments be allocated to the highest interest rate rather than permitting a pro rata option, and reducing the percent of the initial credit ...

What is the credit card law in 2024? ›

Consumer Financial Protection Bureau Releases Final Rule on Credit Card Late Fees, with Overdraft Fees on Deck. On March 5, 2024, the Consumer Financial Protection Bureau (Bureau) announced the final rule governing late fees for consumer credit card payments, likely cutting the average fee from $32 to just $8.

What is the CARD Act of 2008? ›

Credit Cardholders' Bill of Rights Act of 2008 - (Sec. 2) Amends the Truth in Lending Act to prohibit a creditor from increasing any annual percentage rate of interest (APR) applicable to the existing balance on an open end consumer credit card account unless specified conditions are met.

What is the credit card act of 2009 under 21? ›

How the CARD Act changed credit cards for young people. Because of Section III of the CARD Act, borrowers under the age of 21 now must either have a parent cosigner or show proof of sufficient income to qualify for their first credit card.

What is the highest FICO credit score you can get? ›

Read on to learn more. Generally speaking, the highest credit score possible is 850, according to the most common FICO and VantageScore credit models. There are several factors that go into determining a credit score, such as payment history, amounts owed, length of credit history, credit inquiries and credit mix.

How does the Credit Card Act of 2009 provide new measures of accountability for credit card companies? ›

Giving consumers enough time to pay their bills.

Credit card companies have to give consumers at least 21 days to pay from the time the bill is mailed. Credit card companies cannot "trap" consumers by setting payment deadlines on the weekend or in the middle of the day, or changing their payment deadlines each month.

Which of the following is not true about the credit card act? ›

Answer. The statement that is not true about the Credit Card Act is that if cardholders cancel a card, their remaining balances are subject to any rate increase. Instead, cardholders have the right to pay off existing balances at the existing rate and payment schedule.

Which law protects credit card users? ›

The Fair Debt Collection Practices act protects the credit card users from the deceptive or incorrect practices when debt is collected. United States Congress is amended as Public Law 111-203- title X- 124 Stat. 2092 (2010) to protect the customers from the exploitative ways of debt collection.

Does the government control credit cards? ›

A Note About Credit Cards: Most legitimate credit cards are issued by banks, which are outside the FTC's jurisdiction, but the FTC prosecutes non-banks that deceptively market credit cards.

What is the credit card Debt Relief Act 2010? ›

Starting on October 27, 2010, for-profit companies that sell debt relief services over the telephone may no longer charge a fee before they settle or reduce a customer's credit card or other unsecured debt.

What is the Credit Card Act of 2011? ›

The CARD Act curtailed certain practices in the credit card industry that were neither fair nor transparent to consumers and created unanticipated costs. The result has been to make credit card pricing more transparent, so that upfront interest rates now more accurately reflect the true cost of the credit card.

What are the violations of the Card Act? ›

Credit Card Act Violations

Common complaints are billing, advertising, fees, interest rates, rewards and collection problems. Each complaint is assigned a tracking number. The CFPB investigates the complaint to determine if laws were violated and action is needed.


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