Principles for Long-term Credit Card Reform
– First, there have to be strong and reliable protections for consumers.
– Second, all the forms and statements that credit card companies send out have to have plain language that is in plain sight.
– Third, we have to make sure that people can shop for a credit card that meets their needs without fear of being taken advantage of.
– Finally, we need more accountability in the system, so that we can hold those responsible who do engage in deceptive practices that hurt families and consumers.
The Administration applauds the legislative efforts of both the House and the Senate. By working closely together, the House Financial Services Committee and the Senate Banking Committee were able quickly to enact strong protections that the President signs into law today. Below we highlight the critical elements of reform in this new law:
– Bans Unfair Rate Increases
– Prevents Unfair Fee Traps
– Plain Sight /Plain Language Disclosures
– Accountability
– Protections for Students and Young People
Key Elements of the Credit CARD Act of 2009
1. Bans Unfair Rate Increases: Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked.
– Bans Retroactive Rate Increases: Bans rate increases on existing balances due to “any time, any reason†or “universal default†and severely restricts retroactive rate increases due to late payment.
– First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.
2. Bans Unfair Fee Traps:
– Ends Late Fee Traps: Institutions will have to give card holders a reasonable time to pay the monthly bill — at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
– Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do. The act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called “double-cycle†billing.
– Requires Opt-In to Over-Limit Fees: Consumers will find it easier to avoid over-limit fees because institutions will have to obtain a consumer’s permission to process transactions that would place the account over the limit.
– Restrains Unfair Sub-Prime Fees: Fees on subprime, low-limit credit cards will be substantially restricted.
– Limits Fees on Gift and Stored Value Cards: The act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.