Legal Definitions - Credit Card Accountability Responsibility and Disclosure Act (2009)

The Credit Card Accountability Responsibility and Disclosure Act (2009), often referred to as the Credit CARD Act, is a significant piece of federal legislation in the United States.

Its primary purpose is to protect consumers from unfair, deceptive, and abusive practices by credit card companies. The Act introduced new rules designed to make credit card terms clearer, prevent sudden fee increases, and give consumers more control over their credit card accounts, ultimately aiming to help people avoid getting trapped in expensive and unmanageable debt.

Here are some examples illustrating how the Credit CARD Act applies:

• Example 1: Unexpected Interest Rate Hikes

  Imagine Sarah has a credit card with a fixed interest rate of 15% on her existing balance. Before the Credit CARD Act, her credit card company could potentially raise that interest rate to 25% with little notice, even on the balance she had already accumulated. Under the Credit CARD Act, credit card companies are generally prohibited from increasing the interest rate on existing balances unless specific conditions are met (such as the expiration of a promotional rate or if the cardholder is more than 60 days late on payments). For new purchases, they must provide at least 45 days' notice before an interest rate increase takes effect. This provision protects Sarah from sudden, retroactive increases in the cost of her debt, giving her more predictability and control over her finances.

• Example 2: Opt-in for Over-Limit Fees

  Consider David, who has a credit card with a $1,000 credit limit. He attempts to make a $50 purchase, which would push his balance to $1,020. Before the Credit CARD Act, the credit card company might have approved the transaction and then charged David an "over-limit fee." Now, thanks to the Act, credit card companies must obtain a cardholder's explicit permission (an "opt-in") before they can charge fees for transactions that exceed the credit limit. If David has not opted in, the transaction will likely be declined without an over-limit fee. If he *has* opted in, he can only be charged one over-limit fee per billing cycle. This ensures David isn't penalized for exceeding his limit unless he has specifically agreed to allow such transactions and the associated fees.

• Example 3: Credit Cards for Young Adults

  Suppose Emily, an 18-year-old college student, wants to get her first credit card to start building a credit history. The Credit CARD Act includes provisions specifically addressing credit card issuance to individuals under the age of 21. Under the Act, Emily would need to either demonstrate an independent ability to make payments (e.g., through sufficient income) or have a co-signer who is 21 or older and has the financial means to repay the debt. Additionally, the Act restricts credit card companies from offering gifts or incentives to students on college campuses near classrooms or events. These measures are designed to protect young adults from accumulating debt they may not be able to manage, promoting responsible credit use from an early age.