What is the Credit Card Act of 2009?
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (commonly known as the Credit Card Act of 2009), is a Federal statute passed by the United States Congress and further solidified by President Barack Obama on May 22, 2009. The Credit Card Act of 2009 is a comprehensive credit card reform legislation that aims to promote transparent and fair practices regarding the issuance and use of credit cards. The legislation was implemented to reform the extension of credit under an open end consumer credit plan to refurbish the credit system that ultimately precipitated the economic recession of 2008.
Why was the Credit Card Act of 2009 Implemented?
The Credit Card Act of 2009 was created to re-organize and regulate the credit market; lending institutions and credit card companies who offered lines of credit to unworthy (based on credit scores and credit histories) applicants were fundamental in the economic collapse. Millions of Americans out-leveraged themselves and borrowed beyond their disposable income or savings. This ability to spend freely on credit was sparked by the de-regulation in the lending market.
Numerous lenders would extend credit cards or other streams of financing to those individuals who possessed poor or no credit scores. These “bad loans” were distributed with exorbitant fees and interest rates. Over time this created a massive system of default, where millions of Americans were stricken with credit card debt and unable to meet the predatory lending rates supplied by the de-regulated credit card or lending institutions.
Provisions of the Credit Card Act of 2009
The Credit Card Act of 2009 created the Credit Cardholders’ Bill of Rights. This series of documents includes several provisions aimed at regulating how credit card companies implement fees and to what extent they are allowed to charge customers. However, the Credit Cardholders’ Bill of Rights does not include restrictions on price controls, rate caps or fee settings.
Provisions of the Credit Card Act of 2009:
According to the Credit Card Act of 2009, all cardholders are awarded protections against arbitrary interest rate increases. If the issuer wishes to increase the APR or interest attached to the card, they must give the cardholder 45 days’ notice of any increase. Cardholders, because of the legislation, are also now allowed to cancel their card and pay-off any existing balance at the original interest rate if an increase is imposed.
The Credit Card Act of 2009 also prevents credit card issuers from retroactively increasing interest rates on existing balances.
The Credit Card Act of 2009 states that cardholders will not be penalized in the form of late payments or additional fees if they pay their bills on time. Under this rule, credit card companies are also restricted from due date gimmicks or arbitrary changes to the due date.
The Credit Card Act of 2009 protects cardholders from misleading terms. One of the principal aspects of the Credit Card Act of 2009 requires that all fees and charges be transparent to the borrower during the application process. Within this right, issuers must refrain from imposing excessive or unjust fees on their cardholders.
The Credit Card Act of 2009 also implemented provisions concerning the issuance of credit cards to young people. Under the Credit Card Act of 2009, no credit card may be issued to an individual under the age of 21, unless the youth has a co-signer or can provide a substantial proof of payment.