Legal Definitions - Credit CARD Act

The Credit CARD Act, formally known as the Credit Card Accountability Responsibility and Disclosure Act of 2009, is a federal law enacted to protect consumers from unfair practices by credit card companies. It established new regulations concerning interest rates, fees, and disclosures, aiming to make credit card terms more transparent and fair for cardholders.

The Credit CARD Act stands for the Credit Card Accountability Responsibility and Disclosure Act of 2009. This is a significant federal law in the United States designed to protect consumers from unfair practices by credit card companies and to promote greater transparency and accountability within the credit card industry. Enacted in 2009, the Act introduced comprehensive reforms that regulate various aspects of credit card operations, including interest rates, fees, billing practices, and the marketing and issuance of credit cards, especially to young adults.

Here are some examples illustrating the impact of the Credit CARD Act:

• Example 1: Preventing Retroactive Interest Rate Hikes

  Imagine Maria has a credit card with an interest rate of 16% on her outstanding balance. If she makes a late payment, her credit card company cannot immediately raise that 16% rate on her existing balance. Instead, under the Credit CARD Act, any increased interest rate can generally only apply to new purchases made after she has received proper notice of the change. This prevents companies from retroactively increasing the cost of debt consumers have already incurred.

• Example 2: Restrictions on Issuing Cards to Young Adults

  Consider a 20-year-old college student named Alex who wants to apply for his first credit card. Before the Credit CARD Act, it was easier for credit card companies to market and issue cards to college students without much scrutiny. Now, the Act requires that individuals under the age of 21 must either demonstrate an independent ability to make payments (e.g., through sufficient income) or have a co-signer over 21 who is willing to be responsible for the debt. This provision aims to protect young adults from accumulating unmanageable debt early in life.

• Example 3: Standardizing Payment Due Dates and Times

  Sarah often pays her credit card bill online on the due date. Prior to the Credit CARD Act, some credit card companies would set arbitrary early cut-off times (e.g., 1 PM EST) for payments on the due date, causing payments submitted later in the day to be considered late and incur fees. The Act now mandates that credit card payments are due on the same day each month and must be credited on the day they are received, provided they arrive by 5 PM local time on the due date. This ensures consumers have a fair opportunity to make timely payments without being penalized by obscure deadlines.