What Is the CARD Act of 2009?

The 2009 CARD Act aims to enhance consumer protection. Learn more about the ways it safeguards cardholders.

Updated: November 5, 2024

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In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act (the CARD Act or Credit CARD Act for short). As an amendment to the Truth in Lending Act, its primary purpose is protecting cardholders from unfair (and possibly abusive) lending practices.

It does this in many ways, like requiring credit card companies to increase transparency regarding some interest rate increases. The CARD Act also puts caps on late fees and changes over-the-limit fees. Another area it focuses on is the extension of credit to anyone under 21. Unless they show proof that they can pay their debt because of independent income, they must have a co-signer over the age of 21 on the application.

Although passed 14 years ago, the CARD Act still positively affects consumers today. Understanding what it is, how it works, the protection it affords and the loopholes that still exist allow individuals to make more informed financial decisions.

The Credit Card Accountability Responsibility and Disclosure Act (better known as the CARD ACT of 2009 or Credit CARD Act) increased consumers' rights and lessened unfair lending practices of credit card issuers.

The CARD Act’s regulations that significantly impact consumers include requiring issuers to disclose certain interest rate increases early, considering household income before issuing a credit card, strengthening disclosures and having stricter guidelines for applicants under 21.

The Credit CARD Act protects consumers from some unfair practices like high and unpredictable interest rates, hard-to-digest terms and conditions, missing disclosures and junk fees — all of which contribute to a higher cost of credit.

The CFPB releases a report every two years. It focuses on the current credit card market and the CARD Act's effects on it over time.

Although it created a lot of changes in regulations involving credit extension, the CARD Act of 2009 isn't without shortcomings, such as not prohibiting high interest rates or charging deferred interest.

Before May 2009, the Truth in Lending Act (TILA) regulated the credit card marketplace. The CARD Act of 2009 serves as a follow-up amendment.

Sources:

Legal Information Institute, Fact Sheet: Reforms to Protect American Credit Card Holders, The Consumer Credit Card Market 2013

The Credit Card Market Prior to the CARD Act

Using a credit card has become commonplace in today's economy. However, the credit card market has changed over the years. Before the CARD Act's implementation in 2009, some cardholders may have experienced unfair lending and billing practices.

Examples include unwarranted or undisclosed interest rate increases and extensive charging of late and over-limit fees, which made managing debt more challenging. Others were terms and conditions that were confusing and difficult to comprehend, marketing practices targeting financially inexperienced consumers and unfair billing practices.

High Interest Rates and Fees

The average interest rate commercial banks charged on credit cards was as much as 16% in early 1995 — and it declined to around 12% the year before the CARD Act was passed. But interest rates being high wasn’t what caught legislators’ attention — it was the unfair practice of some credit card issuers raising the interest rate without notice and without reason. They could even apply the new rate to an existing balance.

Some also charged numerous fees, increasing the overall cost of credit. An example was fees for going over the limit on a credit card. Over-the-limit fees more than doubled between the mid-90s to 2005, going from less than $15 to over $30.35. By 2008, the average fee, according to the CFPB, was $34.80 per over-limit transaction.

Confusing Terms and Conditions

The Truth in Lending Act requires all lenders to disclose all charges and fees a consumer may encounter when using a credit card. However, the presentation is as important as the data itself. With terms and conditions using complex industry-based jargon, the average cardholder may not have completely understood the contents before the CARD Act enacted changes.

A 2006 study by GAO found that some issuers used small typefaces, lowering the document's usability and readability — and most would skim over it, glossing over crucial information. They would also not group related information together, such as fees. That often resulted in cardholders not knowing when late fees were applied and what may cause issuers to increase interest rates.

Aggressive Marketing Practices

Those under 21 (especially those in college) were at the receiving end of some credit card issuers' aggressive marketing practices, which used various channels. A 2001 GAO report showed the following based on the responses of six large issuers:

All six marketed credit cards to college students through the internet
Five out of six used direct mail
Half used on-and-off-campus tabling, including at athletic events
A third maximized banking relationships
Only one used an 800 number or a telemarketer

Now, a credit card isn't a disadvantage for college students. It can provide financial flexibility and help them establish a good credit history if they use it responsibly. However, they often lack experience managing their finances, and having a credit card may cause them to incur debt that is a burden to pay off.

The GAO report stated that nearly half of college students graduated in 1988 with an average of $19,400 in student debt (over $36,000 in 2023 when accounting for inflation) — adding credit card debt can make repayments overwhelming.

Unfair Billing Practices

The CARD Act aims to increase credit card issuers' transparency so consumers do not have to worry about unnecessary costs associated with their credit cards. Prior to establishing the Act, legislators saw various billing practices as unfair and deceptive. Among these, double-cycle billing, payments for deferred interest, universal default and fees for late payments and exceeding the credit limit were most prominent. Most of these became regulated or abolished when the CARD Act went into effect.

Double-Cycle Billing

When a credit card issuer uses the average daily balance of your current and previous billing cycles to calculate interest charges. That means potentially paying interest on debt that is already paid.

Deferred Interest Payments

Issuers offer low or no interest during a promotion period. However, they'll charge all the accrued interest if the entire balance is not paid off before the period ends.

Universal Default

When issuers increase the interest rate after missing a minimum monthly payment — which applies to the existing balance.

Late Fees and Over-Limit Fees

Many credit card issuers charge a fee for late payments, but no cap is unfair. Also, when a purchase causes a consumer to exceed their credit limit and is approved by the issuer, a fee is assessed.

What Changed With the CARD Act?

The CARD Act of 2009's enactment brought many changes to the credit card market — geared toward protecting consumer rights and increasing transparency and accountability of credit card issuers. There were numerous changes, but we can categorize them into three main groups: consumer protection, enhanced consumer disclosures and the protection of young consumers.

Early notification of some interest rate increases and limits on fees fall under consumer protection. Others in this category include stopping double-cycle billing, doing due diligence regarding a customer's ability to pay before issuing a credit card and ensuring cardholders receive their statements at least 21 days before the due date.

Enhanced disclosures require issuers to post agreements online where consumers can easily access them, and the protection of young consumers involves a revised process of extending them credit.

It's crucial to note that these aren't the only changes brought about by the CARD Act.

Consumer Protection

The CARD Act aims to stop credit card issuers from charging consumers unnecessary costs. These touch on several areas, such as interest rate hikes, double-cycle billing and caps for late fees. Consumer protection also ensures cardholders avoid negative financial situations by having issuers check their ability to pay before extending credit and sending timely statements.

Advanced Notice of Rate Increases and Other Changes

The CARD Act of 2009 requires credit card issuers to inform consumers of certain increases to their interest rate at least 45 days before it takes effect and provide a reason for it. Cardholders can cancel their credit card before the new rate's effective date, which is 14 days after the notification.

Limits on Fees and Interest Charges

Although issuers can still charge late fees, they cannot go beyond a specific amount. If an interest rate hike happens, the new APR can only apply to new purchases (those made after the new rate's effective date), and not to any outstanding balance on a consumer's card. It also applies to other fees.

Restriction on Double-Cycle Billing

Since the 2009 CARD Act prohibits double-cycle billing, issuers can no longer calculate a cardholder's interest rate using the average daily balance beyond the current billing period. It ensures that they don't incur additional costs from paid-off debt. Cardholders are also guaranteed that if their interest rate increases, issuers cannot apply it to a previous period's balance.

Allocation of Card Payments

APRs for different credit card transactions vary, so purchases, balance transfers and cash advances may accrue interest at different rates. Issuers can choose where to apply the minimum payment each month. However, if the cardholder pays more than the required minimum, credit card companies must put the excess amount towards the balance with the highest interest rate.

Timing of Payments

Issuers must send or deliver the credit card statement at least 21 days before the due date, ensuring that the cardholder has ample time to arrange for payment and avoid incurring late fees. Some offer a grace period — a stretch between your billing period and the due date, wherein you can make payments without incurring any finance charge. It must also be 21 days long.

Consideration of Ability to Pay

The CARD Act amends TILA's Regulation Z. Issuers must evaluate an applicant's ability to pay before extending a line of credit or raising limits to an existing one. They must consider factors such as debt-to-income ratio, household income (especially for stay-at-home spouses) or other assets they can readily access.

Prohibition of Universal Default

The CARD Act prohibits credit card issuers from using credit standing or payment history with another lender to increase interest rates. Before the Act, for example, some credit card companies raised rates if a cardholder missed making monthly payments to an auto loan, even if they always made timely payments to their credit card.

Enhanced Consumer Disclosures

A second set of changes brought by the CARD Act of 2009 targets disclosures issuers give. Credit card companies must inform consumers about, for example, minimum payments and due dates, and ensure the credit card agreement is readily available online.

Payoff Timing Disclosures

All credit card holders must have a clear idea of how long it will take them to pay off their credit card balance and how much they will pay in interest. The CARD Act requires issuers to include the following:

The current balance, minimum required payment and its due date.
A warning saying if they only pay the minimum amount, it will take longer to repay the debt and they will pay more interest.
How long it will take to pay off the balance if they only make the minimum payment with no additional charges and the total paid with interest.
How much they have to pay each month to repay their balance in 36 months and the total with interest that will be paid A toll-free number that consumers can call for credit counseling assistance

Late Payment Deadlines and Penalties

All credit card issuers must ensure the following information is on a consumer's billing statement (in a location where it is visible and easily seen):

When payment is due
When a late fee applies, and how much it costs
What the interest rate is after late payments

This way, cardholders know the specific date of when payments must be in and what consequences they face if they miss them.

Make Credit Card Agreements Available Online

Another way the 2009 CARD Act amends the TILA is through the "Additional Electronic Disclosures" clause. While issuers were required to provide consumers with a copy of their terms and agreement, these were typically in hard copy. The amendment requires credit card companies to upload a soft copy on their website, making it easy for consumers to access.

Preventing Deceptive Marketing of Credit Reports

An excellent strategy for managing your finances is getting a copy of your credit report. It helps you prepare for upcoming activities, such as purchasing a car or refinancing your home, or helps you spot unusual activity and protect against identity theft. The CARD Act of 2009 requires companies to disclose that consumers can get a free copy of their credit report once a year through AnnualCreditReport.com, a federal law authorized website.

Protection of Young Consumers

The last set of changes from the Credit CARD Act focuses on young consumers — particularly those who are under 21, whether in college or not. These prohibit issuers from extending credit to them without a co-signer unless they meet certain requirements. They also cannot give gifts in exchange for applying for a credit card.

Extensions of Credit to Underage Consumers

Young consumers do not have extensive experience with managing their finances. To protect them, credit card companies can no longer issue a card to those under 21 unless a parent, guardian, spouse or other individual aged 21 or above co-signs their application.

However, young adults can get a credit card before age 21 if they show proof of independent income, allowing them to comply with repayment requirements.

Protection of Young Consumers From Prescreened Credit Offers

Some issuers used to send prescreened credit card offers to under 21 consumers — and recipients could use them without a co-signer. Now, consumer reporting agencies (CRAs) must remove the date of birth of all consumers under 21 from reports and not share their reports with credit card companies unless asked by or granted consent by the consumer.

Privacy Protections for College Students

Protecting college students involves several institutions, including the school. Since the Credit CARD Act's implementation, colleges and universities must publicly disclose if they have an existing contract or agreement with a credit card company that allows them to market their product.

Issuers can no longer offer any tangible item (in the guise of a gift or a reward) in exchange for a student's credit card application. It applies in areas within or near campuses and even at school-sponsored events.

Impact of the CARD Act

It's been over two decades since former President Obama signed the CARD Act into law. Since then, the landscape of the credit card market has changed, displaying the Act’s impact.

A Federal Reserve Bank of Boston 2013 study focused on how banks responded to the CARD Act. It found that issuers began lowering credit limits between when the Credit CARD Act became law and most of its provisions took effect (February 2010).

The CFPB found that consumers in 2012 would have paid over-limit fees totaling $2.5 billion without the Act in place if consistent with 2007 levels. And late fees decreased by $6, reducing the total amount paid by $1.5 billion.

But the story doesn't end there. With the report that the CFPB issues biennially, we can better understand the impact of the CARD Act (at least until 2021). MoneyGeek presents timelines on its effects in two areas — over-limit and late fees and transparency and accessibility.

Overlimit and Late Fees

The 2009 CARD Act increases consumer protection by capping late fees issuers charge. Credit card companies also must give consumers the choice of opting in to authorize over-limit transactions. If they don't, they can’t make over-limit purchases, erasing the possibility of an over-limit fee.

1
2013
Most credit card companies stopped applying over-limit charges, resulting in a decline from February 2010 onwards. The average late fee charge went from $33.08 to $23.13.
2
2015
The average late fee started increasing, eventually stabilizing at $27 (still below pre-CARD levels). CFPB's findings show that if there had been as many over-limit transactions and applied fees at the 2008 rate, consumers would have spent an additional $9 billion from 2011 to 2014.
3
2017
Credit card fees make up nearly 20% of consumer costs, with consumers with lower credit scores paying more than those with a better credit standing. The safe harbor for late fees increased slightly from $25 (initial) and $35 (second) to $27 and $38 in 2017.
4
2019
Total late fees volume increased from less than $10 billion in 2015 to almost $13 billion in 2018. The average late fee (first and second incidents) also went up to $28 and $39 in 2019. There were almost no over-limit charges in 2017 and 2018.
5
2021
Total late fee volume went down in 2020, totaling less than $12 billion (from almost $14 billion in 2019) due to pandemic-related factors, such as changes in consumer behavior (e.g., spending, saving, repayment) and the waiving or reversal of fees and government payments. Safe harbor for late fees was $29 (initial) and $40 (second within six billing cycles).

Transparency and Accessibility

The Credit CARD Act also enhances disclosures from issuers. These are in the form of statements showing the essential information regarding due dates, outstanding balances, and minimum payments, as well as timelines to pay off the debt, and ensuring consumers can access agreements online.

1
2013
By 2012, many issuers had uniformly presented their cardholder agreements, and with higher readability scores. The content includes clauses stating cardholders must opt-in to over-limit transactions and show how issuers allocate payments.
2
2015
Large banks and credit unions use language that a high school graduate can easily understand, while subprime specialists utilize language suitable for a person with two years of post-secondary education. Most kept their late fees within the safe harbor rather than increasing them.
3
2017
More consumers are using digital tools to manage credit cards — over 60% were enrolled in their issuer's online portal in 2016. Most issuers start using more straightforward pricing practices.
4
2019
Digital tools, such as mobile apps and websites, give consumers more access to view and manage their accounts. Issuers invest in new technology to better manage risk and provide quality customer service.
5
2021
More consumers prefer to receive their statements digitally, though the election tapered in 2020. More cardholders across all age groups use various digital platforms to manage their accounts.

Criticisms and Shortcomings

Despite the various reforms the CARD Act of 2009 brought, it isn't without its shortcomings. For example, while credit card issuers cannot charge consumers fees exceeding 25% of the credit they extend, some subprime credit card issuers have found ways to circumvent it by charging high fees before accounts are opened and increasing them in the second year.

There's also the cap on late fees. Although the Credit CARD Act applies a limit, it is reassessed each year due to inflation. When the Act’s provisions took effect in February 2010, the average late fee went from a little over $33 to a bit over $23. As of 2022, an initial late fee is $30 (a second late fee within six billing cycles is $41).

Criticism or Shortcoming	Description
Deferred Interest Products	Some credit card issuers offer a lower effective annual interest rate during a promotion period, which appears attractive to consumers. However, if they do not pay the entire balance before the promotion period ends, issuers charge all the accrued interest. Consumers with lower credit card scores may be most affected by it because of a higher likelihood of having a revolving balance post-promotion period. They may also have a higher interest rate because of their credit standing.
Cards With Variable Interest Rates	Credit cards with a fixed interest rate or APR are rare, but cardholders with them enjoy the privilege of being unaffected by market conditions. Most cards have variable APRs, where the interest rate is tied to the Prime Rate, which is influenced by the Federal Reserve’s federal funds rate. The CARD Act did not put a maximum on what interest rate can apply to a credit card, so anyone with a variable APR credit card can see their interest rate rise because of economic conditions.
Buy Now, Pay Later	Buy Now, Pay Later (BNPL) gives consumers the ability to purchase an item without paying the entire retail price upfront. While most BNPL programs don't accrue interest, it's not guaranteed 100% of the time. Most consumers use it because approval for a BNPL purchase is typically easier than getting a credit card. However, when lenders charge interest, it may be higher than a credit card issuer might apply.
Maximum Interest Rates	The CARD Act of 2009 requires issuers to wait 12 months before they increase a card's interest rate. And if they do, in most cases, credit card companies must ensure consumers have at least 45 days of advanced notice and know they can cancel their account if the new rate isn't workable. That's as far as it goes. No provision puts a maximum on the APR an issuer can apply.
Business Credit Cards	The Credit CARD Act only applies to consumers. None of its provisions apply to business credit cards. Unfortunately, business owners using credit cards to finance their operations have become commonplace since it provides flexible financing. While credit card companies have often extended some of the protection the CARD Act offers consumers to business owners, they do it of their own volition.

CARD Act 2009 FAQ

The CARD Act of 2009 has been in effect for over a decade, but some consumers may be unfamiliar with what it covers. MoneyGeek has answers to questions cardholders may ask to provide more information about it.

What does the CARD Act of 2009 stand for?

The CARD Act stands for the Credit Card Accountability Responsibility and Disclosure Act, passed in 2009 to amend the Truth in Lending Act. Former President Obama signed it into law in May 2009 to increase consumer rights and ensure credit card issuers act responsibly.

What unfair practices did the CARD Act of 2009 address?

The CARD Act addresses several practices legislators saw as deceptive and unfair to consumers; sudden increases in interest rates, high late and over-limit fees and double-cycle billing were the most prominent.

How does the 2009 CARD Act increase consumer protection?

It restricts and, in some cases, prohibits commonplace practices pre-CARD Act. For example, issuers can no longer apply interest to balances outside the present billing cycle, ending double-cycle billing. They must also apply any payment above the monthly minimum to the balance with the highest interest rate.

What requirements did the CARD Act of 2009 enact to ensure enhanced disclosures from credit card issuers?

Besides having to send statements at least 21 days before a cardholder's due date, issuers must ensure that it prominently presents vital information. These include total balance, due date, the amount of time to pay off debt and contact information for consumer support services, such as credit counseling.

What changes did the CARD Act bring to protect young consumers?

Consumer reporting agencies must exclude on reports an individual's birthdate if they are under 21 and not send their report to a credit issuer without their consent. Also, credit card companies cannot issue credit cards to anyone under 21 unless an adult co-signs the application or they have verifiable independent income. The CARD Act also requires colleges to disclose if they have any standing agreement with issuers to market credit cards.

Related Resources

Having a credit card comes with many benefits. It provides financial flexibility and can help you build credit. However, knowing the ins and outs of how credit cards work does wonders to help you manage your finances.

What Is a Good APR for a Credit Card? One of the first things consumers should consider when looking for a credit card is its APR. MoneyGeek provides strategies on how to compare APRs from various issuers and how to qualify for a good one.
How Does Credit Card Interest Work? One drawback of having a credit card is the interest a revolving balance accrues. MoneyGeek’s guide helps you understand how it's calculated and shows how you can avoid it.
Parents Guide to Debit and Credit Cards for Kids: It’s never too early for children to learn money management. MoneyGeek explores the benefits of getting your kid a debit or credit card and how to determine which type suits them.
A Guide to Your First Credit Card: A credit card is an excellent way to establish credit, but do you really need one? Figure it out with MoneyGeek’s help and (if the answer is yes) get strategies on how to choose one and use it responsibly.
Guide to Credit and Credit Cards for Students: Having a credit card has many benefits for students if they use it responsibly. MoneyGeek provides steps on how students can build credit and avoid common mistakes.

About Doug Milnes, CFA

Doug Milnes is a CFA charter holder with over 10 years of experience in corporate finance and the Head of Credit Cards at MoneyGeek. Formerly, he performed valuations for Duff and Phelps and financial planning and analysis for various companies. His analysis has been cited by U.S. News and World Report, The Hill, the Los Angeles Times, The New York Times and many other outlets.

Milnes holds a master’s degree in data science from Northwestern University. He geeks out on helping people feel on top of their credit card use, from managing debt to optimizing rewards.

Read Full Bio »

sources

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Bureau of Consumer Financial Protection. "2013 Consumer Credit Card Market Report." Accessed November 5, 2024.
Consumer Financial Protection Bureau. "2021 Consumer Credit Card Market Report." Accessed November 5, 2024.
Consumer Financial Protection Bureau. "Consumer Financial Protection Bureau Finds CARD Act Reduced Penalty Fees and Made Credit Card Costs Cleaner." Accessed November 5, 2024.
Consumer Financial Protection Bureau. "CFPB Finds Credit Card Companies Charged $12 Billion in Late Fee Penalties in 2020." Accessed November 5, 2024.
Federal Reserve. "Regulation Z Truth in Lending." Accessed November 5, 2024.
Federal Reserve Bank of Boston. "The Credit CARD Act of 2009: What Did Banks Do?." Accessed November 5, 2024.
FRED Economic Data. "Commercial Bank Interest Rate on Credit Card Plans, All Accounts." Accessed November 5, 2024.
GAO. "College Students and Credit Cards." Accessed November 5, 2024.
GAO. "Highlights: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers." Accessed November 5, 2024.
Office of Financial Readiness. "Truth in Lending Act." Accessed November 5, 2024.

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