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Changes to the Credit Card Industry – Credit CARD Act of 2009

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The Obama Administration is pressing for some major changes to the credit card industry, and it’s about time. I understand the credit card companies are in the business of making money, but many of their business practices are unethical at best and borderline illegal at worst. OK, maybe they aren’t illegal, but that is only because they invent new methods of charging their customers that haven’t been covered by the law books.

Credit Card Act of 2009Don’t get me wrong, I’m not against credit cards. I use them and recommend using them – as long as they are paid off in full each month. The benefits of using credit cards are well documented, and when used properly, they are no more harmful than guns that are used properly. The problem with credit cards is when customers carry a balance, or when card companies assess late fees unfairly. Here are some of the proposals:

New regulations for the credit card industry

Last year Congress passed a bill which included credit card reform and will go into law in 2010. Yesterday the Senate passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 to regulate several aspects of the credit card industry, including restricting the type and number of fees, and limiting the ability for some people to qualify for credit cards.

Limit universal default. Universal default allows lenders to automatically raise your interest rates if you are late on a payment anywhere, even if you have made every payment to that lender on time. The new legislation would limit rate increases  on existing balances to customers who are more than 60 days behind on payments. Credit card companies would also be required to lower the rates to the previous level after 6 months if the card holder makes the minimum payments on time.

Standardizing industry rules for accepting payments on due date. Payments accepted the first business day after a due date that falls on a Sunday or Holiday are considered on time, and payments must be received by 5pm on due date instead of an arbitrary early morning cut off time.

Other notable changes in the bill:

  • Banks must send out your bill no later than 21 days before the due date.
  • Lenders would be required to post their credit card agreements on the internet.
  • Offer customers option to pay their bills online or by phone without additional fees.
  • Credit card companies must provide 45 days notice before increasing interest rates.
  • Customers under age 21 must be able to show proof of income or have a cosigner to obtain a credit card.
  • Consumers must opt in to allow purchases that go over their limit. This will help avoid over the limit fees.

Most of these changes are beneficial to customers and should help clean up the industry by giving customers a better idea of what to expect from month to month.

Things that won’t change about the credit card industry:

  • Interest rates will not be capped.
  • This does not prevent credit card companies from inventing new ways to add charges or bill customers.

Here is a copy of the Credit CARD Act of 2009 (Engrossed Amendment as Agreed to by Senate).

The responsibility belongs to the credit card user

I think these proposed changes are great. The credit card companies have too much control over fees and and rates, and the system is overly complicated. Standardization in the industry will help consumers better understand the system, and will ultimately help the industry save money in other areas, such as customer support and billing. But ultiomately, the responsibility falls on the user. Card holders sign the credit card agreement and should know and understand the contents, even if it is a 63-Page Credit Card Agreement. The key to successfully using credit cards is to pay the balance in full every month, on time, every time.

What are your thoughts on the proposal?


Published or updated November 2, 2012.
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{ 21 comments… read them below or add one }

1 Kristen

Since I work in a field that helps people who are in debt, I can’t begin to say how helpful I think these changes will be. That being said, there is still a huge amount of personal responsibility that comes with having a credit card. I hope the general public realizes that they are ulitmately responsible for how they use their cards. The new rules will at least add some consistency to certain practices and make terms and conditions more easily accessible, which is very important.

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2 Hal

I do like some of the bill. Though I do think credit card companies have been predatory in going after college students. But the thing is that they are just taking advantage of the bigger problem which is the lack of teaching fiscal responsibility. We’ve changed the way we consume and turned our nation into a nation built upon fostering debt.

If we could get back to a time where people could purchase without the need of credit we’d be in good shape. Though I don’t know if we ever will. Particularly when you have a government bent upon borrowing and creating money out of thin air.

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3 Ryan

Hal, Unfortunately, financial topics are not on the curriculum of most high schools. For the most part I think this is a move in the right direction, but I agree, the lack of financial education is a big problem in our country.

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4 Craig

They spoke a lot about this on Bill Maher show last Friday if you watch and how it seems that CC companies do anything possible to trick users and profit off their lack of education, awareness, insecurities or whatever. This may help in certain aspects, but overall do you really think things will change that much? Like you mention it doesn’t say CC companies can stop thinking of different ways to make money or charge, which means they will find some loop holes. Also, changes still don’t prevent lack of responsibility on users part. To me at least, that seems to be a bigger issue than anything else.

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5 Ryan

Craig, you’re right, these changes cannot prevent the lack of responsibility on the user’s part, which is ultimately where responsibility lies. People need to know how much they can afford to spend and not go beyond that.

But these changes will help standardize the industry and eliminate some of the areas where credit card companies are taking advantage of people – things like universal default, arbitrary cutoffs on due dates, late fees when the payment is received the day after a Sunday or holiday, sending out bills less than two weeks before the payment is due, charging for payments online or over the phone, etc. The credit card companies can always create new fees and expenses, which very well might happen. But I think this is a move in the right direction.

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6 Craig

@Ryan It seems the only people who really don’t get any benefit from this are the “deadbeats” the users who pay in full every month. Do you think they should be rewarded more somehow as a way to incentivize?

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7 Ryan

Craig, I think the users who pay every month are already getting a fair deal – usually with reward points or cash back, and the ease of making transactions through one source and having a single payment and tracking capability. The rewards are already in place. I think the bigger issue is to keep people from being taken advantage of.

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8 Curious Cat Investing Blog

Good post. I agree, credit cards are good (though some people use them poorly). We need regulation though because the issuers of the most credit cards are using very egregious practices.

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9 Kirk Kinder

I am a huge fan of transparency, but I don’t like the government getting involved in this for a few reasons:

1. It is just another example of us shunning personal responsibility and letting the government “save” us. If you don’t like 60 page credit card agreements with fine print, then don’t use them. If customers walked, then the industry would change.
2. Unintended consequences. This will cause the companies to find new fees in other ways. More than likely, it will hit those folks who pay the balance each month. Annual fees, disappearing rewards programs, or shorter (or no) grace periods will become standard. Also, the folks who are irresponsible with their usage of the credit cards will find lower credit limits and higher interest rates from the get-go. It will pull credit out of the system. Just wait – two years from now the government will be back at the credit card companies charging them with not making credit as readily available as it once was.
3. As mentioned above, the responsible card owners will end up subsidizing those who are fiscally challenged. This is not right…period.
4. I hear how this will protect college students. You really have to wonder if college does much for students. Maybe degrees are over-rated. They are spending upwards of $40,000 for a college education (at a state school), but they can’t figure out that eventually they have to pay for that pizza they just bought with a credit card. Ignorance isn’t an excuse. This isn’t a hard concept to grasp, especially for someone at an institute of higher learning. I hate to be rude, but maybe you shouldn’t spend $40,000 on a college degree for someone who can’t figure out that the pizza and beers aren’t free when you put them on plastic. Besides, if you are treated as an adult in the eyes of the law, then you shouldn’t have to get Mommy or Daddy to co-sign for you. College is there to teach life lessons. Either they learn quickly to use credit wisely, or they come out of college and learn the lesson the hard way. Plus, do we think that a college student will graduate and suddenly use credit wisely. Do they shed their ignorance at 22. I find most people really get into trouble with credit once they have good paying jobs where they can get a great deal of credit.
5. The government is just pandering for votes. They figure if they can say they got tough with the banks regarding credit cards, we will forget they gave the banks billions. Or, that they authorized the bonsues at AIG.

Hate to be so cynical, but this is really a ridiculous waste of time and money. If they really want to make a difference, then teach personal finance in the schools.

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10 Ryan

Kirk: Your arguments are well thought out and bring up serious issues. A response deserves more than just a quick line, so I wrote this article: Credit CARD Act of 2009 – Good or Bad? It gives the big reasons why I support it, thought I will be the first to agree that each of your points is valid.

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11 DDFD at DivorcedDadFrugalDad

If people would all pull together and pay off their balances by the end of the month many CC companies would go out of business . . . or raise their fees dramatically. They rely on human nature to strive and thrive . . .

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12 Dan

I disagree with the proposal to eliminate fees for paying online or by phone. Depending on how the company is set up, alternative methods of payment might incur additional costs – it should be the right of the company to transfer that cost to the customer. No, I don’t like those fees, and sometimes that extra cost is not truly justified. But it’s no place for the government to restrict a company’s right to enact it. (C.C. companies are not the only entities that do it: airlines, banks, entertainment ticketing agencies, etc.)

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13 Ryan

Dan: After putting more thought into it, I agree with you. I was thinking from a consumer perspective, and that isn’t the right way to think. It is more convenient for everyone involved, but it should not be driven by law.

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14 Hal

The more I think about this the more I think in the end the result will be bad and agree with Kirk on a lot of points.

I do think there is a need to make sure that companies don’t level burdensome usury charges, but that is in the end what I think our government will be doing in the form of taxes to pay for all the bailouts.

Seeing the stock market today I also think that many on Wall Street or digesting what this bill means for banking and are getting real skidish.

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15 Becca Nunya

I actually work for one of the banks that will be affected by this change. I used to feel the same way every consumer feels about banks and fees until I started working here. Its not because I love the company….it’s because I realize how irresponsible some consumers are about the logistics of agreeing to use their credit card. Here are my following thoughts:

#1-Consumers are not taught financial responsibility (unless they grow up with accountants as parents). When I tell someone a fee or condition of their account is in their Terms and Disclosures that they agreed to when they filled out the application their response is “No one really reads any of that stuff”. That statement completely baffles me…if you dont read it how d0 you know what you’re actually signing?? You might be signing away your house. There are so many options out there for people to become knowledgable about stipulations and conditions about credit, finance, loans, credit cards…PLEASE people use google!!! lol

#2-Fees are associated to credit cards for REASONS! If they didnt have late fees, everyone would be late on their payments. If they didnt have overlimit fees, everyone would use their card in excess to their credit line and there would be no reason for credit limits all together. There is a processing fee that most banks have to pay when you pay over the phone from another financial institution. Thats why banks give other options to make payments (i.e. mail, at a bank, or online). If you dont like the $10 fee…use a $0.44 stamp or pay $29.99 for internet service (or get a library card)

#3- Most interest rates are increased based on Risk Level. If you go from owing $1,000 to $12,000 in 6 mos you are more likely to default on your responsibilities based on financial statistics. Im not saying all people do…some people have different situations like opening up a business or got a commission at work and can pay it off but MOST DONT FALL INTO THAT CATEGORY. Based on the current economic situation everyone is having a hard time and banks understand that. If you arent able to make your payments and you ask for a lower rate but all they can offer you is a reduced payment for twelve months but no lower rate if you say thats not going to make a difference YOURE WRONG. Yes you may be still accruing interest at that rate but instead of making life decisions at the grocery store or gas station you know that despite you still having the same interest rate you are able to feed your family. It might take you a longer time frame to pay off the balance but at least you wont affect your credit report and still have the opportunity to continue with a good payment history.

#4-Please start reading information and passing it on. Educate your children…teach them responsibility and accountability with money. You dont have to be a Business Major to know this stuff. I know Business and Accounting Majors who are in more credit card debt than anyone else I know. Please people….start taking responsibility for your own actions. If you are late, dont lie and say I tried to call and you were closed or go online and it wouldnt let me pay (we can now track this stuff :) Just say you messed up and forgot or didnt have the money. WE LOVE HONESTY!!!

#5-Set Your Emotions Aside: If you are calling your bank…most times you wont get the same person you talked to before. The person on the line has no idea about the situation and is trying to help you (well most of us :) We understand people get upset about their money because alot of people are strapped right now. Being nice is the best way to get stuff done. Cursing, yelling, and calling people names or incompetent is a guaranteed way to get the least amount of service on your account. The nicer you are the more out of your way people are willing to go. Remember we are humans too, just because we work for a company youre mad at or because your day was JACKED up does not give you the right to yell at us.

In closing( i know this was long) lol Credit Card companies are a business they have to make money. If you dont like a particular company…trust me there are others out there. Take your business somewhere else. But be aware that they have Terms and Conditions with their credit cards. And make sure you read the DANG AGREEMENTS!!! lol

Love yall

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16 Ryan

Becca: Thanks for sharing your perspective and the perspective of the companies, very well stated. The only thing I can add is regarding the over the limit fees. Once upon a time credit card companies simply wouldn’t allow charges to be made if it would take the card holder over their limit. Now some companies not only allow it, but welcome it. The new legislation allows card holders to turn that feature off and not be allowed to make charges over the limit. I think it’s great.

There are a few other changes to the legislation I think are good, such as standardized billing requirements and a few other things. I think simplification is better.

Thanks for sharing.

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17 Heather Johnson

Since you work for a bank as you say and support this, please tell me why my credit union has sent me a letter stating that this bill affects my car loan? I have 2 cars financed with them over the last 2 years and I pay them bi weekly, so i have a car payment taken out every week to pay for them both. Now they are saying that due to this credit card act they can no longer offer bi-weekly deductions (it come straight out of my bank account with them) because they won’t be able to bill me 21 days in advance in a statement. The problem is they don’t send me a statement, never have in 2 years! so now they want to make $1200 a month in car payments due on the same day every month and I get to pay $100 extra a month that i was saving by paying twice a month. My arguement with them is that I don’t get a statement to begin with! Please let me know how this is part of the credit card act.

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18 Ryan

Heather, It might affect all loans, I’m not sure. You should still be able to pay twice per month regardless of whether they send you a statement. Just set up your auto bill pay to continue making the bi weekly payments. They should continue to credit your account as they have in the past.

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19 Ari

It can affect a car loan if the loan is written as what is called open-ended lending. This mainly affects credit unions (I work at one), as banks normally don’t do open-ended lending. The card act was supposed to only affect credit cards but because of the wording that was put in at last minute(without any input from the industry) it affects all open-ended loans which means auto loans, personal loans, lines of credit, etc. This does not affect mortgages or home-equity loans. Basically the loan mandates that the statement has to be delivered and be sent out 21 days in advance of the billing period, so weekly or bi-weekly is not possible because there is no way to be in compliance. This is the one part of the law that I and my coworkers agree is bad- everything else will mostly benefit consumers. I agree that Ryan’s suggestion to set up auto-pay to make your normal payments is the best bet, and that is what we are going to be recommending our members do.

20 Heather Johnson

Hi Ryan,
Thanks for the info. Are you saying we can set up the auto bill pay with our bank and just keep paying bi-monthly so that by the end of the month (when they have our due date on the 28th) it will be paid in full for that month? I didn’t know we could do that and our credit union certainly didn’t suggest it either. at least that would keep our budget the same. I’ve never had anyone change a car loan mid-way through like this. The credit card act may be a good thing for some of the things it is doing but this part of it is really messed up when it affects all your other loans. Thanks again for the response.

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21 Ryan

Heather, I can’t speak for your specific loan because I don’t know the details… But you should be able to set up your payments on auto pay, and so long as you pay enough to cover the payment each month by the due date, you should be fine. The payment should be applied the day it is received, so it should result in less interest being paid over the long run (because the first payment is applied before a full month’s interest is earned). This is a great way to reduce your debt more quickly.

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