The Credit Card Accountability Responsibility and Disclosure Act of 2009 is a federal law that was passed with the intention of curbing some common forms of abuse that credit card companies regularly engage in. The law applies to consumer credit cards only, and does not relate to those used for business purposes.
Deceptive practices, resulting in hidden fees and costs, inspired creation of the law. These practices included:
- Interest rate increases without warning.
- Transactions being processed so the largest one was tallied first, making it more likely a consumer went over his or her credit limit, resulting in fees.
- Changing due dates from month to month and setting deadlines during the day, so if payments were not received before a certain time (even though payment was received on the due date), late fees were assessed.
- Fees being charged for paying over the phone or through the Internet.
- If a debtor fell behind in payments to one card, a fee could be charged on a different card.
- “Inactivity” fees to be paid if there were no charges and late fees in case the “inactivity” fee was not paid on time.
The 2009 law requires that:
- Bills are sent at least 21 days before payment was due (up from 14 days).
- The monthly due date remains constant and if a due date falls on a weekend, any payments received the next business day are considered on time.
- Any interest rate increase can only take with 45 days notice and cannot apply to purchases made before the increase went into effect.
- Limits on how many fees can be applied and how large they can be.
- No fees for paying by phone or Internet.
Neale Mahoney, an economist at the University of Chicago’s Booth School of Business, studied the effects of the law. The New York Times later reported his findings. Before he conducted the study, Mahoney thought the law was well intentioned but was most likely a wasted effort. He believed that the costs and fees prohibited by the CARD Act would just be replaced by new ones that skirted the law. But his research showed otherwise.
The regulation apparently works. Costs of credit cards, especially for those with poor credit, have dropped. There was no evidence of increased interest charges or reduced access to credit. Mahoney concluded that the law is saving consumers about $20.8 billion a year (or an annualized 2.8% of the average daily credit card balance).