Cardholder rights bill signed into law

WASHINGTON (5/26/09)—A series of sweeping new credit card industry reforms aimed at protecting consumers became law after President Barack Obama on Friday signed H.R. 627, the Credit Card Accountability, Responsibility and Disclosure Act of 2009.

The bill, known by the partial acronym the "Credit CARD Act," was approved by the Senate last week. It will prevent lenders from such things as making arbitrary changes to the interest rates and terms associated with a card that holds an existing balance.

While the new rules should "help rein in" many abusive credit card practices, Credit Union National Association (CUNA) President/CEO Dan Mica has said that some portions of the bill could "have the unintended consequence of raising compliance costs and making credit more expensive and less available to consumers."

The bill, which suddenly moved with remarkable speed and strong support through both the Senate and House after years of work, also will require card issuers to notify a cardholder at least 45 days in advance of increasing the annual percentage rate (APR) or fees.

The APR generally will not be allowed to increase on existing balances, unless covered by an exception specified in the law, such as for cards with variable rates or when the cardholder is more than 60 days late in making a payment.

The provisions in the new law are generally effective in 9 months, but two of the provisions will be effective Aug. 20. Starting this summer, credit unions will have to give the 45-day written notice before any increase in the APR or fees, and will have to make sure that they mail credit card periodic statements at least 21 days before any due date in order to assess late payment penalties.

CUNA has scheduled an audio-conference on June 18 to discuss the requirements of the law. Details and registration procedures will be available later this week.

The new law raises questions about what happens to the Regulation Z amendments and the unfair and deceptive practices rules that the Federal Reserve Board (Fed) and the National Credit Union Administration have finalized on credit card programs, which are scheduled to go into effect on July 1, 2010.

"Obviously, the agencies are going to have to revisit their credit card rules to incorporate the new statutory requirements -- and adopt new effective dates," said Kathy Thompson, CUNA's senior vice president for compliance.

Although the law does not mandate any changes in interchange fees, it directs the Government Accountability Office (GAO) to complete a study on this issue in six month. CUNA has opposed any legislation restricting interchange fees. Congress has instructed the GAO to look at nine areas, including "the extent to which interchange fees allow smaller financial institutions and credit unions to offer payment cards and compete against larger financial institutions."

Additional provisions in the new law include:

A credit card cannot be issued to anyone under the age of 21 unless someone over that age agrees to be jointly liable (and authorizes any increase in the card's limit), or the young person can demonstrate he has independent means to repay the debt. Limits are placed on college students being given inducements to apply for credit cards, and colleges will be required to publicly disclose any contracts they have for marketing credit cards;

If a creditor increases the APR on a credit card, it must at least every six months review the account to see if conditions warrant reducing the APR;

When an account has balances subject to different APRs, payments have to first be allocated to the balance with the higher APR;

No over-the-limit fee can be charged by the card issuer unless it has disclosed the service fee and the cardholder has elected ("opted in") to permit such transactions for a fee;

The Fed must adopt regulations on what are "reasonable and proportional" fees associated with credit cards;

Credit card contracts will have to be posted on the card issuer's website and provided to the Fed, and the Fed is to establish a public repository of all credit card agreements; and

Gift cards will be subject to restrictions on inactivity fees and expiration dates.

For CUNA's comprehensive summary and the language of the "Credit CARD Act," see the resource links below.

courtesy of cuna.org