Credit Card Accountability Responsibility and Disclosure Act

On May 22, 2009, President Obama signed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Public Law 111-24, the Credit CARD Act) into law. The Credit CARD Act, which Congresswoman Carolyn Maloney of New York introduced as the “Credit Cardholders’ Bill of Rights” in January of this year, was intended to protect consumers from the credit card industry’s worst abuses. The new law has five Titles:

• Title I: Consumer Protection
• Title II: Enhanced Consumer Disclosures
• Title III: Protection of Young Consumers
• Title IV: Gift Cards
• Title V: Miscellaneous Provisions

Starting today, some consumer protections provisions in Title I go into effect. Among them is §101 which changes the amount of advance notice that card issuers are required to give card holders for rate increases and other changes. The section obligates creditors to provide at least 45 days notice before raising interest rates or making any other significant changes in the terms of customer accounts. In the past, card providers were required to give just 15 days notice.

Under §101 (b) (2), creditors may not change the terms governing repayment of an outstanding balances depending on whether the credit card account is a variable rate or a fixed-rate. The creditor is required by §101 (b) (3) to inform the cardholder of the right to cancel the credit card account before the rate increase takes effect. If the cardholder does cancel, payment of the outstanding balance is at the old rate — not the new, higher rate that the card company is assessing. Another additional change made by §106 (a) is that the creditor is required to send bills at least 21 days before a payment is due, up from 14 days prior to the new law.

Most of the Credit CARD Act’s other protections start in February, 2010 although a few — such as requiring cards to reduce interest rates for consumers with improving credit reports — will not be effective until Aug. 22, 2010. When all the provision of the new law are fully implemented, many of the worst abuses that credit card companies have relied such as double cycle billing, universal default and increasing rates on existing balances will be prohibited. The law does not allow for private enforcement although §511 authorizes a state, as parens patriae, to “bring a civil action on behalf of the residents of the State in an appropriate district court of the United States or other court of competent jurisdiction (A) to enjoin that practice; (B) to enforce compliance with the rule; (C) to obtain damages, restitution, or other compensation on behalf of residents of the State; or (D) to obtain penalties and relief provided by the Federal Trade Commission Act and such other relief as the court considers appropriate.”

Given the limited enforcement provisions, the new law’s value in advancing consumer protection is open to question. Moreover, most cardholders have already begun to see higher interest rates as many credit card companies, in anticipation of the new law, have raised interest rates before the first changes took effect. At the same time, many consumers have seen their credit limits reduced before the law took effect.

One unexpected provision included in the Credit CARD Act of 2009 is in Title V, namely §512 titled Protecting Americans from Violent Crime and §512 (b) titled Protecting the Right of Individuals to Bear Arms in Units of the National Park System and the National Wildlife Refuge System.