President Signs Credit Card Accountability, Responsibility and Disclosure Act of 2009

May 26, 2009

Credit card industry prepares for greater enforcement and new restrictions.

An increasing number of people are relying on credit cards to get through the current troubled economy. With the passage of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act), H.R. 627, however, the face of the credit card industry will be significantly altered. 

After dying in the Senate last year, the Credit CARD Act has made a dynamic comeback. In an overwhelming vote, the U.S. Congress approved the Credit CARD Act, and it was signed by the president on May 22, 2009.

The various provisions of the Credit CARD Act will go into effect at different times, starting 90 days from the date the bill was signed to 15 months from the date the bill was signed. The majority of the provisions go into effect on Feb. 22, 2010.

The Credit CARD Act enforces many of the rules already approved by the Federal Reserve in December 2008, but also imposes additional strenuous restrictions on credit card issuers. Among other provisions, the bill: (1) requires credit card companies give cardholders 45 days advance notice of an increase in interest rates; (2) prohibits credit card companies from increasing interest rates retroactively on existing balances unless the cardholder is more than 60 days late in making a payment; (3) prohibits credit card companies from marketing and issuing cards to borrowers under the age of 21; and (4) permits consumers to set credit limits lower than the limit offered by the credit card company.

While the Act aims at leveling the playing field between cardholders and card companies, it may be detrimental to small banks due to the elimination of risk-based pricing which may reduce competition and consumer choice.

ACA is currently preparing a Fastfax document discussing the particular provisions in the Credit Card Accountability Responsibility and Disclosure Act, which will be available to ACA members in the coming weeks.