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Credit Cardholders Bill of Rights

Credit Cardholders have new rights.

In 2009, H.R. 627: Credit Card Accountability and Disclosure Act, more simply referred to as the Credit Cardholders Act, was passed by the senate and signed into law by President Obama. The act amends the TILA (Truth in Lending Act) and contains unprecedented regulations. In fact, the senate added even more aggressive legislation to the house's original bill.

Here are the changes the CARD Act made to the credit industry:

Consumer Protection

  • Retroactive interest rate increases are banned except when a cardholder is more than 60 days late paying a credit card bill. Credit card issuers must review the cardholder's account six months after increasing the interest rate, and return the APR to the previous lower level if the cardholder has been on-time with payments.
  • Interest rates cannot be increased within the first 12 months of opening an account, and promotional rates must have a minimum of 6 months in duration.
  • 45 days advanced notice prior to interest rate increases or other significant changes in credit card terms: this includes the benefits and reward structure of a credit card.
  • Over credit limit fees are now prohibited unless consumers specifically agree to allow transaction to go through instead of being denied.
  • Bills must be sent out no later than 21 days before the due date.
  • Payments the cardholder makes must be credited as on-time if the payment is received by 5 P.M. on the due date.
  • Issuers will be barred from charging customers who pay bills online or by phone or wire transfer, unless it is for expedited service.
  • Customer payments in excess of the minimum due will have to be applied to the part of a credit card bill that carries the highest interest rates.
  • Ban on universal default. Card issuers won't be allowed to use payment history on anything other than their card as a reason for increasing a consumer's rate.
  • Ban on Double cycle billing. Issuers can no longer charge interest to two full cycles of card balances, only the most recent billing cycle balances.

Enhanced Consumer Disclosures

  • Clear disclosure on how long it would take to pay off a credit card balance if the cardholder makes only the minimum payment each month.
  • Clear disclosure on the total cost in interest and principal payments if a cardholder makes only the minimum payment each month.
  • Late payment deadline and postmark date are required to be clearly shown and disclosed to cardholders.

Protection of Young Consumers

  • Credit cards cannot be issued to people under the age of 21 unless they have an adult co-signer or show proof that they have the means to repay the debt (proof of reasonable income).
  • College students will be required to receive permission from parents or guardians in order to increase credit limit on joint accounts they hold with those adults.
  • People under the age of 21 will now be protected from pre-screened credit card offers unless they specifically opt-in for offers.

Gift Cards

  • Gift cards are now required to remain active for at least five years from the day of their activation.
  • Dormancy or inactivity fees on gift cards can no longer be imposed unless there have been no activity in a 12-month period.
  • Dormancy or inactivity fees must be clearly disclosed to gift card buyers.
  • If the gift card expires after 5 years, the terms of expiration needs to be clearly disclosed to gift card buyers.

Universal Default

Universal default, one of the most egregious practices of credit card companies, has come to an end. Thanks to the CARD Act, creditors can no longer change the rates and terms of your account based on the negative information regarding a non-related account.

Since the mid-1990's, lenders and creditors commonly reviewed credit report information to see if their borrowers had defaulted on other loans. If they discovered derogatory information on another account, they could legally raise interest rates and/or slash limits; even if the first account was in good standing. According to credit card companies and lenders, Universal Default was a way of assessing risk and protecting themselves. To everyone else, it was biased and unfair; which is why it is now illegal.