December 16, 2009

By: Shaun Ertischek, Esq.

President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure Act on May 22, 2009.  This law provides for comprehensive credit card reform.

As of August 20, 2009, credit card issuers must provide written notice at least 45 days before they increase the annual percentage rate on a credit card account or make any other significant change to the terms of the account.  Previously, only 15-day advance written notice was required.  However, this notice will not be required in certain situations, for example if you have an introductory rate that expires.  Credit card issuers must inform consumers in the same notice of their right to cancel the credit card account before the increase or change goes into effect.  Also, credit card issuers generally must deliver periodic statements for credit cards at least 21 days before payment is due.  Previously, credit card issuers only had to send statements at least fourteen days before the due date.

As of February 22, 2010, credit card issuers will not be able to increase the interest rate on an existing credit card balance unless the borrower is at least 60 days late on the account.  This will eliminate retroactive rate increases and universal default clauses.  If the account provides for a promotional interest rate period, the promotional interest rate will have to last at least six months.  Credit card issuers will not be able to raise interest rates on new credit card accounts during the first year the account is opened.  As stated earlier, this rule will not apply if the borrower falls 60 days late on a credit card payment.  Additionally, credit card issuers will have to include a minimum payment disclosure that explains how long it will take to pay off the existing balance and the total cost in interest fees if the cardholder paid only the minimum amount due.  An applicant under the age of 21 must also have a co-signer over the age of 21 or show the independent financial ability to repay the debt.

The Act does not apply to business or corporate credit cards.  Furthermore, the Act does not limit how high interest rates can go.  As such, new legislation has recently been introduced in the U.S. House of Representatives (by Louise Slaughter, D-NY, and John Tierney, D-MA) to cap credit card interest rates at 16 percent and to also limit certain fees.  Previous attempts at similar legislation have failed.  However, the Act and other legislative reforms are helping to rein in abuses within the credit card industry and provide a beacon of hope to consumers.