The details and effects of Obama’s 2009 bill:
On May 22, 2009, President Barack Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act). The Act was designed to strengthen consumer protection while ensuring transparency, accountability, and mutual responsibility between credit card issuers and their consumers.
Some of the key elements of the CARD Act include a ban on unfair free rate increases, which includes a ban on all retroactive interest rate increases. That same provision also provides “First Year Protection” for cardholders,
meaning the terms in the agreement must be clearly spelled out and the interest rate must remain stable for no less than one year.
A provision in the Act requires credit institutions to give their consumers 21 days to pay their bills from the date their statements are mailed to them. Card issuers must also give cardholders 45-days notice of significant changes made to the terms of their card agreements, including changes or interest rates and fees. In addition, consumers now have the right to grant permission to process transactions that would place them over their credit limit.
Another key element of the Act is the plain language requirement. This provision states that credit card companies must give consumers clear disclosures of account terms before they ever open an account with them. They also must give clear statements of account activity after the account is opened. Moreover, creditors are required to show the consumer how long it would take to pay off the principal balance of her account if she were to only make the minimum monthly payments. Card issuers will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months.
The CARD Act increases accountability among credit card issuers and the regulators charged with stopping unfair practices and enforcing protections. The Act requires issuers to post credit card contracts on the Internet and in an easy-to-read format. Furthermore, if card issuers violate any of the new restrictions, they will face significantly higher penalties under the current law.
Regulators will also face increased accountability under the Act. They now must report to Congress annually on their enforcement of consumer protections and update the rules if increased protection is deemed necessary.
Recent studies have shown that two years after the Credit CARD Act was passed, rates and fees have remained more stable than before the passing. In a study done by the Pew Safe Credit Cards Project, it showed more transparent,
consumer-friendly practices among issuers. Nick Bourke, the direct of Pew, said the studies “are concluding
[that] the credit card market really has stabilized. The Credit CARD Act was very effective at changing the practices
that it targeted while not shutting the credit card market down or causing serious changes.”
By Benjamin Sorenson