What: The Credit Card Accountability Responsibility and Disclosure Act (also known as the Credit CARD Act) was enacted on May 22, 2009, and amends the Truth-in-Lending Act to address concerns relating to credit card accounts under open-end consumer credit plans.
While the Credit CARD Act did not define the term “credit card account under an open-end (not home-secured) consumer credit plan”, the term was defined in the final rules issued by the Federal Reserve Board on January 12, 2010. The term is defined as any open-end credit account accessed by a credit card, except:
(A) A credit card that accesses a home-equity plan subject to the requirements of § 226.5b; or
(B) An overdraft line of credit accessed by a debit card.
There are staggered effective dates: August 20, 2009, February 22, 2010, and August 22, 2010.
- Interim final rules were issued by the Federal Reserve Board on July 15, 2009 to implement the two provisions that were effective August 20, 2009
- Periodic statements must be provided 21 days before the due date. If not, the creditor may not treat the payment as “late for any purpose.” (Note that this requirement originally applied to all consumer open-end credit plans. However, H.R. 3606, enacted on November 9, 2009, amended the Truth-in-Lending Act again to limit the requirement to only credit card accounts under open-end consumer credit plans. Therefore, Regulation Z has been further amended.)
- A 45-day advance written notice is required for significant changes in terms such as an increase in APR or an increase in fees. A 45-day advance written notice is also required if the APR is increased due to the consumer’s default or delinquency. (Home equity lines of credit are exempt from this requirement.)
- Final rules were issued by the Federal Reserve Board on January 12, 2010 to implement those provisions impacting credit card accounts under an open-end (not home-secured) consumer credit plans that are effective February 22, 2010.
- Prohibits increases in the rate during the first year as well as increases in a rate that applies to an existing credit card balance
- Prohibits issuance of a credit card to a consumer under the age of 21 unless the consumer has the ability to repay or obtains the signature of a parent or other cosigner with the ability to repay
- Requires creditors to obtain a consumer's consent before charging fees for transactions that exceed the credit limit
- Limit the high fees associated with subprime credit cards
- Bans the "two-cycle" billing method
- Prohibits creditors from allocating payments in ways that maximize interest charges
- Requires payment amount due, late payment fee, and any penalty APR to be disclosed on the front side of the periodic statement
- Final rules were issued by the Federal Reserve Board on June 16, 2010 to implement the remaining provisions impacting consumer credit card accounts under open-end (not home-secured) consumer credit plans. These provisions are effective August 22, 2010.
- Limits the amount of penalty fees that creditors may charge
- Requires the creditor to either adopt the Board’s safe harbor amounts for penalty fees or to show that higher amounts represent a reasonable proportion of the costs it incurs as a result of violations
- Prohibits the creditor from charging a penalty fee that exceeds the dollar amount associated with the violation (e.g., a $30 late fee for a minimum payment of $15)
- Prohibits the creditor from charging a penalty fee if there is no dollar amount associated with the violation (e.g., a fee for account termination)
- Prohibits the creditor from charging multiple penalty fees based on a single event (e.g., both a late fee and returned payment fee when the check is returned causing the payment to be late)
- Requires the creditor to periodically review rate increases (since January 1, 2009)
In general, creditors must comply with the substantive provisions by August 22, 2010. However, the mandatory compliance date of most disclosure provisions is December 1, 2010 in order to give creditors time to update documents.
