Credit CARD Act of 2009

On May 22, 2009, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (“CARD Act”) was signed into law.

Many of the CARD Act's provisions track recently approved Federal Reserve System ("Federal Reserve") regulations and amending the Truth in Lending Act ("TILA") to include additional consumer protections, enhanced consumer disclosures, and special protections for consumers under 21, the Fair Credit Reporting Act regarding special protections for young consumers and deceptive credit report marketing, and the Electronic Fund Transfer Act targeting gift cards.

Like the Federal Reserve’s recent regulations, the CARD Act:
○limits when interest rates may be increased, thereby prohibiting "universal default" (i.e., where default in one obligation deemed to cause default in consumer’s universe of obligations);
○prohibits double-cycle billing;
○limits circumstances under which payments may be considered late;
○limits permissible methodologies for allocating payments exceeding “minimum amount due”;
○place restrictions on subprime credit cards; and
○mandate changes to certain disclosures.

Additionally, the CARD Act’s provisions:
○limit changes to other account terms;
○restrict use and amount of fees;
○require evaluating consumer's ability to repay when opening new account or increasing existing account’s credit limit;
○mandate posting of credit card agreements on the Internet;
○provide special protections for consumers under 21, including limiting marketing of credit cards to college students;
○imposes rules governing prepaid and gift cards;
○increases TILA penalties for issuers equaling twice finance charge amount with a $500 minimum and $5,000 maximum, or a higher amount if based on an established pattern or practice; and
○ curbs “free credit reports” advertisements.

Both the CARD Act and Federal Reserve’s new regulations are likely to affect credit cards’ availability and cost, consumer behaviors regarding credit cards purchases and payment patterns, and revenues of credit card issuers and processors, as well as retailers, colleges, and others involved in credit card programs.