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Credit Cards:  The Card Act

The Credit Card Accountability Responsibility and Disclosure Act of 2009 or Card Act as it is commonly referred to, is federal legislation passed by Congress to reign in the abusive practices of credit card companies. The Card Act prevents credit card issuers from the following activities:

(1) Credit card banks cannot arbitrarily increase the interest rate on a credit card unless the cardholder does not pay as agreed and they cannot arbitrarily change the terms and conditions associated with the credit card;

(2)  Credit card issuers must give their customers at least 45 days notice that the interest rate on the credit card will be raised.  Cardholders then have the right to decline the higher interest rate, close the account and pay off the credit card at the current interest rate. Card holders have three billing cycles to decide whether they will accept the new interest rate.

(3) Outlaws universal default, which was a common practice among credit card issuers, wherein credit card issuers would raise the interest rate on a customer if that customer defaulted on any of her bills, including her mortgage, other credit cards, etc., and would rarely ever lower it again, even if the customer improved her credit score.

(4) Bans the common practice of double billing, which is defined as charging interest on debt that is paid before the due date as agreed. Credit card issuers are also banned from applying a customer's payment to a specific type of debt in order to maximize their profits.  For example, most banks in the past would apply payments to purchases rather than cash advances, which had a much higher interest rate.  The amount owed in a cash advance would accumulate a significant amount of interest for the bank because the customer never paid it down. Now banks must apply payments to the balance with the highest interest rate first.

(5) Customers who have fallen behind on their payments and sufferered an interest rate increase can have their interest rate returned to the lower, previous interest rate if they pay as agreed and on time for six months.

(6)  Customers cannot have their due date changed arbitrarily and credit card issuers must mail monthly statements three weeks before the due date (instead of two weeks) and credit card issuers must credit a  payment to a customer's account on the day it is received. Credit card banks cannot have the due date fall on a federal holiday or weekend unless the company processes payments on those days. Credit card issuers cannot charge a late fee is the customer can prove she mailed the payment at least seven days before the due date.

(7) Limits the ability of credit card issuers to market credit cards to college students, teenagers and those under the age of 21 and limits their ability to sponsor college events and hand out free stuff at college events.  Now, those under 21 must prove they have sufficient income to be approved for a credit card; otherwise, they can only receive a credit card if someone over the age of 21 co-signs or is a joint account holder on the credit card.

(8)  Credit card issuers must now post their terms and conditions more prominently on credit card contracts, statements and on the internet, using a font of sufficient size so that the average person can read it.  They must also write their terms in a way that more people can understand them, so that they are stated more clearly.  All statements sent to customers must include a phone number and internet address giving directions to customers on how to pay off their balances.  Monthly statements must include information on how long it would take the customer to pay off her balance if she only made the minimum monthly payment and information showing how she could pay off the card in a three year period. Credit card issuers must make it easy for customers to obtain a copy of their contract by posting this information prominently on their website and issuers are required to provide a copy of a customer's contract within 30 days after it is requested.

(9) Bans the practice of charging over-the-limit fees when a customer has declined the option to charge amounts that exceed her credit limit.  Customers must expressly opt in to be charged over-the-limit fees, and even then, banks can only charge over-the-limit fees for three billing cycles. A bank cannot charge an over-the-limit fee when posting the annual fee, credit insurance payment or other type of fee puts the account over-the-limit.

(10) As regards subprime cards for those with no credit or bad credit that come with excessive fees, credit card banks must collect all fees before they issue the credit card if the fees exceed 25 percent of the credit card's total credit limit, instead of having the fees applied to the card balance and eat up the entire credit limit from the beginning as was the previous custom.
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