How does the Credit CARD Act protect you?Updated: Oct. 18, 2018

Some people might take for granted the protections they have these days when it comes to how credit card providers can treat their customers, but it wasn’t that long ago when consumers were more or less at the mercy of credit card issuers. Sudden, unexplained increased interest rates and excessive late fees are just some of the unfair practices credit card issuers were once legally using against consumers.

That’s why the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (also known as the Credit CARD Act) was created. Signed into law by President Obama in 2009, and later revised by the Consumer Protection Financial Bureau in 2013, what the Credit CARD Act did was to essentially rewrite some of the laws surrounding credit card practices to help protect cardholders. These regulations are meant to give them a better understanding of the rules surrounding their credit card(s) and to give them rights if and when an issuer changes their card’s terms and conditions. If you’re wondering how these regulations affect you, keep reading as we break down a few of this law’s major highlights and what they mean for you.

What the Credit CARD Act does to protect you

Limits increased interest rates

The Credit CARD Act protects consumers from increased interest rates on existing balances and limits these increases to certain circumstances, such as a promotional rate ending (e.g., 0% intro APR), when you are late on a payment (also known as penalty APR) or an increase in the Federal rate that all banks adhere to. That said, if there is an increase in APR because of a late payment, but the cardholder makes 6 on time payments in a row, the issuer must restore the previous APR. The Credit CARD Act also prohibits credit card issuers from applying the increased APR to previous balances; the increased rate can only be applied to future balances. Recently, this aspect of the law was brought to life when Citi reported that, by human error, it had miscalculated or failed to reduce the APRs of some 1.7 million credit card accounts that were due for a rate reduction. The bank will be issuing refunds later this year to make up for it.

Requires issuers to give advance notice

If a credit card issuer is changing any of the major terms and conditions of your initial contract (including the interest rate), they must give you 45 days’ advance notice before any changes are made. Issuers are also required to send statements 21 days before a payment is due, whereas they used to only be required to give 14 days’ notice.

Gives cardholders the right to opt out

In the event that you don’t agree with an increase in your interest rate — or any other significant change in the terms of your contract — the Credit CARD Act grants you the right to opt out. In order to opt out of any upcoming changes, you must agree to close your account and pay off your remaining balance under your account’s previous terms. You must pay this balance within the span of 5 years, or risk a delinquency that could result in the debt being sent to collections.

Limits fees

In the past, credit card issuers could charge cardholders up to $39 if they were late on a payment, but the Credit CARD Act caps late fees at $27, however, it’s important to note that that late fee could go up to $38 if you make more than one late payment within 6 months — another reason you should always pay your bills on time. Late fees aren’t the only kind of fee the Credit CARD Act limits, as penalty fees cannot legally exceed the amount of the violation. This means that if you exceed your credit limit by $8, for example, you cannot be charged more than $8 as a penalty fee. You can learn more about credit card fees at our blog post here.

Takes third-party income into account

The revisions the CFPB made to the Credit CARD Act in 2013 allow “card issuers to consider third-party income if the applicant has a reasonable expectation to access it.” This means that stay-at-home spouses can include their partner’s income on credit card applications, which can help boost their chances of approval. Two stipulations of including other income on applications are that the applicant has access to that income (e.g., living under the same roof) and that the applicant is at least 21 years of age.

What the Credit CARD Act does not do

Although the Credit CARD Act does prevent issuers from raising interest rates in some circumstances, as noted above, it does not protect you in all circumstances. If you miss a credit card payment, even just once, your issuer can legally increase your APR, or charge you what is known as penalty APR. Because a penalty APR is a consequence of making a late credit card payment, there is no guarantee that you’ll be able to get your old interest rate back until you make 6 consecutive on-time payments. Additionally, there are other reasons out of your control, such as the Fed rate, that could cause your interest rate to rise. Finally, issuers are completely within their rights to set any APR they wish, as you can see with this credit card that had a nearly 80% APR. That’s why it’s important to pay attention to the maximum range when you see a credit card’s variable APR listed, and not just the minimum or any promotional 0% intro APRs.

How can you report a violation?

If you believe that your credit card issuer has violated your rights under the Credit CARD Act, you should first try to contact them and get the issue resolved. However, if that doesn’t work, then you will want to contact the Consumer Financial Protection Bureau (CFPB), which you’ll remember is the agency that helped revise the act in 2013. Filing a complaint with the CFPB will put the bureau on the case, and it will work with your credit card issuer on your behalf to resolve your situation.

Now that you understand the Credit Card Act, you might want to know more about your finances. Be sure to follow our personal finance blog for everything consumer finance related.