On May 20, 2009, the House passed the final version of the Credit Cardholders' Bill of Rights, H.R. 627, and the President signed the bill into law on May 22, 2009.  The landmark reforms to the credit card industry under H.R. 627 go into effect today to level the playing field for consumers by giving them the rights and information they need to make educated decisions about their financial lives.

The Credit Cardholders' Bill of Rights:
Prevents Unfair Increases in Interest Rates and Changes in Terms
* Prohibits arbitrary interest rate increases on existing balances, unless the consumer is 60 days late on a payment or fails to comply with a workout agreement.
* Eliminates "universal default," where card issuers raise interest rates because of lateness or default with other creditors -- even if the cardholder is in good standing with the card in question;
* Requires a credit card issuer who increases a cardholder's interest rate to periodically review and decrease the rate if indicated by the review;
* Prohibits issuers from increasing rates on a cardholder in the first year a credit card account is opened;
* Requires promotional rates to last at least 6 months.

Prohibits Exorbitant and Unnecessary Fees
* Prohibits issuers from charging a fee to pay a credit card debt, whether by mail, telephone, or electronic transfer, except for live services to make expedited payments;
* Prohibits issuers from charging over-limit fees unless the cardholder elects to allow the issuer to complete over-limit transactions, and also limits over-limit fees on electing cardholders;
* Requires penalty fees to be reasonable and proportional to the omission or violation;
* Strengthens protections against excessive fees on low-credit, high-fee credit cards.

Requires Fairness in Application and Timing of Card Payments
* Requires payments in excess of the minimum to be applied first to the credit card balance with the highest rate of interest;
* Prohibits issuers from setting early morning deadlines for credit card payments;
* Requires credit card statements to be mailed 21 days before the bill is due rather than the current 14.

Protects the Rights of Financially Responsible Credit Card Users
* Prohibits interest charges on debt paid on time (double-cycle billing ban);
* Prohibits late fees if the card issuer delayed crediting the payment;
* Requires that payment at local branches be credited same-day;
* Requires credit card companies to consider a consumer's ability to pay when issuing credit cards or increasing credit limits.

Provides Greater Disclosure of Card Terms and Conditions
* Requires cardholders to be given 45 days notice of interest rate, fee and finance charge increases;
* Requires issuers to provide disclosures to consumers upon card renewal when the card terms have changed;
* Requires issuers to disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made;
* Requires full disclosure in billing statements of payment due dates and applicable late payment penalties.

Strengthens Oversight and Penalties Credit Card Industry Practices
* Requires each issuer to post its credit card agreements on the Internet, and provide those agreements to the Federal Reserve Board to post on its website;
* Requires the Federal Reserve Board to review the consumer credit card market, including the terms of credit card agreements and the practices of credit card issuers and the cost and availability of credit to consumers;
* Requires Federal Trade Commission rulemaking to prevent deceptive marketing of free credit reports;
* Increases existing penalties for companies that violate the Truth in Lending Act for credit card customers.

Ensures Adequate Safeguards for Young People
* Requires issuers extending credit to young consumers under the age of 21 to require either a co-signor or proof that the applicant has an independent means of repaying any credit extended;
* Limits prescreened offers of credit to young consumers;
* Prohibits increases in the credit limit on accounts where a parent, legal guardian, spouse or other individual is jointly liable unless the individual who is jointly liable approves the increase;
* Increases protections for students against aggressive credit card marketing, and increases transparency of affinity arrangements between credit card companies and universities.

Generally the credit card provisions take effect in nine months; some provisions, such as the 45-day notification for interest rate increases and 21- day mail requirement, take effect in 90 days.

Gift Card Protections
* Protects recipients of gift cards by requiring all gift cards to have at least a five-year life span, and eliminates the practice of declining values and hidden fees for those cards not used within a reasonable period of time.

Encourages Transparency in Credit Card Pricing
* Requires the GAO to study the impact of interchange fees on consumers and merchants, specifically their disclosure, pricing, fee and cost structure.

Protects Small Businesses
* Requires the Federal Reserve to study the use of credit cards by small businesses and make recommendations for administrative and legislative proposals;
* Establishes Small Business Information Security Task Force to address the information technology security needs of small businesses and help prevent the loss of credit card data.

Promotes Financial Literacy
* Requires comprehensive summary of existing financial literacy programs and development of strategic plan to improve financial literacy education.

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Q&A about the Credit CARD Act, HR 627

What does the Credit CARD Act do?
It ends unfair, deceptive and anti-competitive practices of credit card companies. That's not just rhetoric--that was the official finding by the Federal Reserve when they passed their credit card rule in December, 2008: unfair, deceptive, and anti-competitive. (When they put their rule out for public comment, they received more than 66,000 comments--the most ever!)

Here are the main provisions of the CARD Act (introduced as the Credit Cardholders' Bill of Rights):
* Any rate hike or change in terms must be `noticed' 45 days in advance.
* Card statements must be sent 21 days in advance of the payment due date.
* Interest rate hikes on existing balances are prohibited--only on purchases going forward.
* Penalty rate increases for those less than 60 days overdue on their payments are banned.
* Over-limit fees are allowed only if companies obtain an affirmative opt-in in advance from the customer--and will be `reasonable and proportional' to the cost, as set by regulators.
* Charging interest on debts paid on-time (i.e., double-cycle billing) is banned.
Due-date gimmicks such as setting morning times for payment, before mail is delivered or charging fees for paying a bill by phone or internet.
* Requires promotional rates to last at least six months.
* Consumers under 21 must demonstrate an ability to pay (i.e., some kind of income) or have a parent co-sign for the card.

What's the `kitchen-table' benefit to consumers?
No longer will credit card companies be allowed to increase interest rates on existing balances at any time for any reason. Only on new purchases going forward, and only with enough notice (45 days) to enable you to accept or reject the rate hike, and shop around for another card.

Card companies have already hiked rates to outrageous levels for many consumers. What can the CARD Act really do for consumers now?
With the rise in default rates of cardholders during the recession, it's true that card companies have increased rates and fees for many. But the CARD Act still has many tangible benefits for consumers. 

The biggest is that rate hikes on existing balances are banned under the new law. That's a big impact for those who, in good times and bad, pay just the minimum balance at some times. 

The littlest-known benefit is this: consumers can refuse to accept the rate hike and pay off the balance under the old rate. Under the new law, card companies are required to give 45 days' notice--almost two billing cycles--of any rate increases on new purchases. If a consumer receives notice of a rate hike that's out of line, they simply notify the card company that they reject the rate hike and want to close the account--and start shopping around for a new card.  That's how markets should work, and haven't for far too long in the credit card business. 

The Card companies have said they'll have to cut back on credit availability and card perks because of the costs of complying with this new law. Is that a problem?
There's plenty of reason to doubt the doom-and-gloom from card companies, who fought tooth-and-nail to oppose the law. While it's probably true that people with lower credit scores are having more trouble getting cards (just like they always have),  just this week a Bloomberg News/Business Week story highlighted a high-score cardholder who received a new iPod using points from his card company: http://www.businessweek.com/news/2010-02-15/rich-getting-richer-rewards-as-credit-card-law-refutes-bankers.html

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Implementation Dates of The Credit CARD Act
P.L. 111-24

The CARD Act contains three separate implementation dates, 90 days, 9 months and 15 months after enactment. The break-out below lists when provisions become effective.

August 20, 2009--already took effect   
* Provide increased written notice to consumers of any increases in the interest rate or otherwise makes a significant change to the terms of a credit card account;
* Inform consumers of their right to cancel the card before the rate hike goes into effect; and
* Send statements to consumers 21 days before the due date of any payments.

Will Become Effective Monday, February 22, 2010
* Prohibits arbitrary interest rate increases and universal default on existing balances;
* Prohibits issuers from charging over-limit fees unless the cardholder elects to allow the issuer to complete over-limit transactions, and also limits over-limit fees on electing cardholders;
* Requires payments in excess of the minimum to be applied first to the credit card balance with the highest rate of interest;
* Prohibits issuers from setting early morning deadlines for credit card payments;
* Prohibits interest charges on debt paid on time (double-cycle billing ban);
* Requires issuers extending credit to young consumers under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual 21 years or older who will take responsibility for the debt; or proof that the applicant has an independent means of repaying any credit extended; and
* Protects recipients of gift cards by requiring all gift cards to have at least a five-year life span, and eliminates the practice of declining values and hidden fees for those cards not used within a reasonable period of time.

Will Become Effective August 22, 2010
* Requires penalty fees to be reasonable and proportional to the omission or violation;
* Requires that creditors periodically review all interest rate increases since January 2009 and reduce rates when a review indicates that a reduction is warranted; and
* Amends the Electronic Fund Transfer Act to limit dormancy, inactivity, and service fees associated with gift cards. 

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