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Breaking Down the CARD Act: What It Is and How It Affects Consumers

The Credit CARD Act of 2009 established significant consumer protections relating to the use of credit cards. It is still in effect today.

March 31, 2022

The U.S. government has various rules regulating how banks can lend money, market their products and treat consumers. 

One act of legislation that regulates credit cards specifically is the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act).

This act establishes significant protections for consumers relating to interest rates, fee limits and disclosures. 

This guide will explain what you need to know about the CARD Act. 

What is the Credit CARD Act? 

The full name of this act is the Credit Card Accountability Responsibility and Disclosure Act of 2009, but it’s better known as the CARD Act. 

The CARD Act is a piece of legislation passed by the United States Congress in 2009. It aimed to protect consumers against unfair practices in the credit card industry. 

The CARD Act expanded upon the existing Truth in Lending Act. The CARD Act placed limits on certain fees, required advanced notice for interest rate changes and provided more transparency relating to credit card terms. 

The full text of the CARD Act has all the detailed legal text — but it’s difficult to understand. This article will break down what the CARD Act means for everyday people. 

But first, why did the CARD Act emerge? 

History of the CARD Act

The CARD Act was signed into law in May 2009. At the time, the country was reeling from the 2008 financial crisis and was in a full-blown recession. 

At the time, lawmakers were eager to crack down on predatory lending practices that had contributed to the financial crisis.  

The 2008 crisis was primarily caused by a collapse in the housing market resulting from aggressive lending practices that led banks to issue mortgages to people who weren’t qualified to pay them back. 

As regulators cracked down on predatory lending in the mortgage industry, they also started to look at lending practices in the credit card industry. This increased regulatory attention led to the passage of the CARD act. 

How the CARD Act affects consumers

The CARD Act was designed to protect Americans from unfair practices by credit card lenders. 

American credit card users don’t need to actively “do'' anything to benefit from this act. Instead, the Act is a set of rules that credit card issuers are required to comply with. 

There are four broad categories to the Act:

  • Limits on credit card interest rate changes

  • Limits on fees

  • Protections for young consumers

  • Enhanced consumer disclosures/transparency

Here are the key components of the CARD Act that Americans should know.

Limits on credit card interest rate increases

All credit cards charge interest if you carry a balance. If you spend $100 on a credit card and don’t pay it off quickly, you’ll end up paying your credit card company $100 plus any interest that accrues. 

Interest rates on credit cards are measured as an annual percentage rate or APR. And the APR you are given will affect how much interest you pay. 

Before the CARD Act, card issuers could raise interest rates at any time, even without notice. Worse, they could raise interest rates on existing debt as well as new purchases. 

The CARD Act established several protections relating to credit card rate increases. Card issuers must now: 

  • Wait until accounts are at least 12 months old before raising interest rates

  • Notify customers at least 45 days in advance of a rate increase

  • Notify customers that they have the right to cancel the card before the new rate takes effect

  • Ensure they do not retroactively apply interest rate increases to current debt, only to new purchases after the new rate is in effect

This last point is very important. If you have a balance on your credit card and your APR increases, you’ll still pay the old APR on that balance. But any new purchases you make will be subject to the higher APR. 

There are a few exceptions to this rule, however, including if you’re more than 60 days late on a payment. 

Limits on credit card fees

The Act also requires that credit card fees be “reasonable and proportional.” It created maximum fees (called fee “caps”) for common credit card fees:

Late fees: Credit card late payment fees are currently capped at $29 for the first late payment, and $40 for multiple late payments within six months. This cap is reviewed regularly by the Consumer Financial Protection Bureau (CFPB) and may be raised periodically.

Over-limit fees: Previously to the CARD Act, consumers could be charged a fee if they spent over their predetermined credit limit. The CARD Act required card issuers to automatically reject transactions that would result in a customer running over their credit limit. By default, it’s no longer possible to spend over one's limit, therefore, there are no over-limit fees. However, customers can still opt-in to being able to make over-limit purchases and these may be subject to over-limit fees. 

Upfront fees: Particularly for borrowers with poor credit, credit cards may have steep activation fees, account set-up fees, annual fees and more. The CARD Act requires that these initial fees can’t exceed 25% of the initial credit limit on the card. If someone is given a $500 credit limit, for example, they can’t be charged more than $125 in initial fees. 

Protections for younger credit card applicants

The CARD Act made it more difficult for card issuers to market their products to younger Americans. It also raised the age at which you could apply for credit on your own to 21. 

Those under 21 years old must now generally have a co-signer to open an account. If the applicant proves they can repay their debts on their own, they can get around this rule. 

Increased disclosures and transparency

The CARD Act also requires card issuers to improve consumer disclosures on their products.

For example, card issuers must disclose how long it would take to pay off a balance if a customer only makes the minimum payments. 

It also mandates that credit card statements must be sent out no later than three weeks before the payment due date. 

Wrapping up

The CARD Act helped establish greater protections for American credit card users. 

However, some critics argue that the Act didn’t do enough. For instance, the CARD Act didn’t establish a maximum credit card APR — nor did it prevent banks from raising credit card interest rates. 

While the CARD Act helped somewhat, credit cards can still be very expensive. 

If you have credit card debt, paying it off should be among your top financial priorities. 

Tally† may be able to help. Tally is a credit card payoff app, providing a lower-interest line of credit that helps qualifying Americans pay off credit card debt faster.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.