What is the Credit CARD Act? All you need to know

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009, popularly known as Credit CARD Act or CARD Law, It is a federal law that has been issued in the United States to protect credit card users from abusive practices that plastic issuers could practice.

The main objectives of the CARD Law are, in essence, to reduce fees and charges associated with credit card transactions, commissions, maintenance fees, among others; as well as forcing banks to comply with the correct publication and disclosure of the real costs of the cards and the sanctions that would apply in the event of non-compliance.

Do you want to know everything about the Credit CARD Act? Let’s take a closer look at it.

What is the Credit CARD Act for?

This law It was approved by the United States Congress in 2009., and was signed by the current president, Barack Obama, during 2010. But, what is the purpose of this law and why was it created? The CARD Law finds its foundation in the TILA law (Truth in Lending Act; in Spanish, Ley de Veracity sobre los Préstamos) and what it seeks is protect consumers from malpractice by credit card issuers.

The purpose of the Credit CARD Act is to eliminate or reduce certain credit card fees, minimize the manipulation of younger or inexperienced customers, and provide greater and better disclosure of the fees subject to the approval and use of each card that there is. in the market. Before the approval of this law, the legal framework for credit cards was quite confusing. And not only that, it also included certain legal and financial terminology that made it difficult for consumers to know and understand the fees and penalties associated with the cards.

Under the CARD Act, the Consumer Financial Protection Bureau (CFPB or Consumer Financial Protection Bureau) is the entity responsible for develop, implement and enforce standards associated with credit cards. In the first four years of the law’s validity, a reduction in costs for consumer loans and revolving loans was reported. In fact, the average late payment fee was reduced from $35 to $27.

What rules does the Credit CARD Act include?

We could divide the content of the Credit CARD Act into several different sections that, in summary, state the following:

Limits charges for universal breach

What does this mean? That banks cannot apply the highest interest rate in the market to a consumer’s future products for a late payment. Credit card issuers are also required to make you more clear about when you might lose your benefits, like promotional APRs, for example.

Forces to provide clear debt reports

The law also requires credit card issuers to notify cardholders how long will it take them to pay the your card balance if they only deposit the minimum payment month by month.

Bans some forms of marketing and advertising

Especially if they are aimed at the youngest and students. Claims such as “get free products, all you have to do is sign this app” are prohibited.

Regulates gift cards and prepaid cards

Limit fees and set expiration dates gift cards and non-reloadable prepaid cards.

Prohibits overdrafts

The law does not allow issuers to overdraw the card beyond its maximum limit and then charge the customer a special fee for doing so. Credit card holders have the option of overdrawing the card and assuming the cost that, by the way, must have been previously informed by the bank. Ideally, if they don’t opt ​​for the overdraft option and the credit card is at its maximum limit, the transaction will be denied.

Regulates the sending of notifications

Statements are required by law to be mailed or sent online no later than three weeks from the payment due date and that these dates are unalterable in time, unless the client decides to modify them.

Important note: The CARD Act even mandated that information related to credit cards be disseminated through Schumer charts, that is, easy-to-read charts so that customers can easily understand what the rates, fees, terms and conditions are. to which your card is subject.

What deficiencies does the Credit CARD Act have?

What is the Credit CARD Act

Since its approval in 2009, consumer rights defenders have argued that the content of the law is not enough, at least not enough to prohibit all the abusive and unfair practices that occur when we talk about the relationship between credit cards credit, its issuers and the holder. For example, some banks raise the interest rate without giving prior notice to cardholders. There are also still charges for deferred interest or charges applied retroactively., especially after the end of an introductory APR.

This type of action gives a certain advantage to banks and issuers to market their credit cards. In addition, aspects such as protection against identity theft, rewards and miles programs, grace periods without penalty and the conditions of commercial credit cards are also not regulated in the law.

However, it is not only the defenders of consumer rights who have complaints regarding this regulation, which, apparently, has fallen short in some situations. Financial industry players have also criticized the Credit CARD Act, arguing that the prohibitions and limitations that exist for interest rate increases and annual fees make credit cards unaffordable for many.

Why? Because this causes the bank to lower the credit limit and raise the required credit score to access the card. Therefore, those who do not have a desirable credit rating will not be able to access a credit card that suits their needs.

Conclusions on the Credit CARD Act

In short, this is everything you need to know about the Credit CARD Act:

  • The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act or CARD Act) seeks to reduce deceptive and abusive practices by credit card issuers.
  • The CARD Law requires consistency and clarity in the terminology used by the issuer and the banks, and also in the terms and conditions related to the card.
  • Since its implementation, the Credit CARD Act has saved consumers a lot of money. It has also made it easier to use, apply for, and understand credit cards.
  • The CARD Act is neither perfect nor without its critics. Some say it hasn’t reduced consumer abuse, or at least not all, and others say it makes credit cards more expensive or difficult to obtain because of limitations placed on issuers and banks.

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