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Research Papers in Economics

Principles for Long-term Credit Card Reform
First, there have to be strong and reliable protections 
for consumers. Second, all the forms and statements that 
credit card companies send out have to have plain lan-
guage that is in plain sight. Third, we have to make sure 
that people can shop for a credit card that meets their 
needs without fear of being taken advantage of. Finally, 
we need more accountability in the system, so that we 
can hold those responsible who do engage in deceptive 
practices that hurt families and consumers. 
Key Elements of the Credit CARD Act of 2009
Bans Unfair Rate Increases
•  Financial institutions will no longer raise rates un-
fairly,  and  consumers  will  have  confidence  that 
the interest rates on their existing balances will not 
be hiked.
Reforms to Protect American 
Credit Card Holders
A Summary of the Credit Card Accountability,  
Responsibility, and Disclosure Act
President Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act into law on 
May 22, 2009, noting that “With this new law, consumers will have the strong and reliable protections 
they deserve. We will continue to press for reform that is built on transparency, accountability, and 
mutual responsibility – values fundamental to the new foundation we seek to build for our economy.” To 
help explain the changes to the regulations, the White House issued a fact sheet that outlined the major 
provisions in the Credit CARD Act of 2009.1 This fact sheet is reprinted below.
•  Bans Retroactive Rate Increases: Bans rate increases 
on existing balances due to "any time, any reason" or 
"universal default" and severely restricts retroactive 
rate increases due to late payment. 
•  First Year Protection: Contract terms must be clearly 
spelled out and stable for the entirety of the first 
year. Firms may continue to offer promotional rates 
with new accounts or during the life of an account, 
but these rates must be clearly disclosed and last at 
least 6 months. 
Bans Unfair Fee Traps
•  Ends Late Fee Traps: Institutions will have to give card 
holders a reasonable time to pay the monthly bill – at 
least 21 calendar days from time of mailing. The act 
also ends late fee traps such as weekend deadlines, 
due dates that change each month, and deadlines 
that fall in the middle of the day. 
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•  Enforces Fair Interest Calculation: Credit card com-
panies will be required to apply excess payments 
to the highest interest balance first, as consumers 
expect them to do. The act also ends the confusing 
and unfair practice by which issuers use the balance 
in a previous month to calculate interest charges on 
the current month, so called "double-cycle" billing. 
•  Requires Opt-In to Over-Limit Fees: Consumers will 
find it easier to avoid over-limit fees because institu-
tions will have to obtain a consumer’s permission to 
process transactions that would place the account 
over the limit. 
•  Restrains Unfair Sub-Prime Fees: Fees on subprime, 
low-limit credit cards will be substantially restricted. 
•  Limits Fees on Gift and Stored Value Cards: The act 
enhances disclosure on fees for gift and stored value 
cards and restricts inactivity fees unless the card has 
been inactive for at least 12 months. 
Plain Sight /Plain Language Disclosures
Credit card contract terms will be disclosed in lan-
guage that consumers can see and understand so they can 
avoid unnecessary costs and manage their finances.
•  Plain Language in Plain Sight: Creditors will give 
consumers  clear  disclosures  of  account  terms 
before  consumers  open  an  account,  and  clear 
statements of the activity on consumers’ accounts 
afterwards.  For  example,  pre-opening  disclosures 
will highlight fees consumers may be charged and 
periodic statements will conspicuously display fees 
they have paid in the current month and the year 
to date as well as the reasons for those fees. These 
disclosures  will  help  consumers  make  informed 
choices about using the right financial products and 
managing their own financial needs. Model disclo-
sures will be updated regularly based on reviews 
of the market, empirical research, and testing with 
consumers to ensure that disclosures remain clear, 
useful, and relevant. 
•  Real Information about the Financial Consequenc-
es of Decisions: Issuers will be required to show 
the  consequences  to  consumers  of  their  credit 
decisions.
Issuers  will  need  to  display  on  periodic  statements 
how long it would take to pay off the existing balance— 
and the total interest cost—if the consumer paid only the 
minimum due. 
Issuers will also have to display the payment amount 
and total interest cost to pay off the existing balance in 36 
months. 
Accountability
The  act  will  help  ensure  accountability  from  both 
credit card issuers and regulators who are responsible for 
preventing unfair practices and enforcing protections.
•  Public posting of credit card contracts: Today credit 
card  contracts  are  usually  available  only  in  hard 
copy and not in plain language. Now issuers will be 
required to make contracts available on the Internet 
in a usable format. Regulators and consumer advo-
cates will be better able to monitor changes in credit 
card terms and evaluate whether current disclosures 
and protections are adequate. 
•  Holds regulators accountable to enforce the law: 
Regulators  will  be  required  to  report  annually  to 
the  Congress  on  their  enforcement  of  credit  card 
protections 
•  Holds regulators accountable to keep protections 
current: 
•  Regulators  will  be  required  to  request  public 
input on trends in the credit card market and 
potential consumer protection issues on a bien-
nial basis to determine what new regulations or 
disclosures might be needed. 
•  Regulators will be required either to update the 
applicable rules, or to publish findings if they 
deem further regulation unnecessary.
•	 Increases	penalties:	Card issuers that violate these 
new restrictions will face significantly higher penal-
ties than under current law, which should make vio-
lations less likely in the first place. 
Cleans Up Credit Card Practices For Young 
People at Universities
The act contains new protections for college students 
and young adults, including a requirement that card issuers 
and universities disclose agreements with respect to the 
marketing or distribution of credit cards to students. 
36

Reforms to protect American credit card holders

http://www.frbsf.org/publications/community/investments/0908/reforms_creditcard.pdf

Reforms to protect American credit card holders

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Research Papers in Economics