What is the Credit Card Accountability Responsibility and Disclosure Act of 2009?

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (otherwise known as the CARD act) was enacted by Congress to protect consumers from unfair lending practices, but some say the measure is falling short on the promises it made, according to Smart Money.

The most recent complaint voiced by consumer advocates relates to a rule that dictates how issuers must allocate payments to credit cards. The initial payment allocation proposal would have mandated that lenders apply all payments to the balance with the highest interest first. However, this proposal was altered to a weaker rule that requires issuers to apply for any payment over the minimum monthly bill to the highest rate first.

For example, one credit card may charge a higher interest rate for different types of transactions, meaning that the rate for a standard purchase may be lower than the rate for a cash advance. If a borrower’s required minimum payment is $50 and they send in $75, the issuer must only apply $25 to the transaction with the highest rate. The issuer will have discretion over where to apply for the required $50 payment, forcing the borrower to carry a balance for a longer period of time.

Despite the current allocation method, the CARD Act has been successful in two of its promised provisions, according to the National Foundation of Credit Counseling. One disclosure rule forces issuers to provide a breakdown to consumers on how long it will take to pay off their balance if they only make the minimum payment. An NFCC survey shows that the rule, in addition to another law that forces lenders to provide a toll-free number to a credit counseling service on a consumer’s statement, has been beneficial to individuals.

“This disclosure aspect of the CARD Act appears to have had the intended result, in that 25 percent of more than 2,000 respondents said it inspired them to pay more each month, while 12 percent indicated that it prompted them to reach out for help to the credit counseling agency listed on their credit card statement,” NFCC spokesperson Gail Cunningham said.

Consumers who carry credit card debt should obtain a copy of their credit report to examine their debt-to-credit ratio and how it may be impacting their credit score. Though it may be difficult financially, consumers should try to make more than the minimum payment each month to pay off their balance and slowly improve their financial standing.

By changing the information available on their monthly bills, the new credit card law may also inspire customers to seek credit counseling before their debt gets out of control, according to a release by Accelerated Debt Consolidation, Inc.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 currently requires that lenders include a toll-free phone number for credit counseling and debt management services on monthly bills. They must also include a timetable showing how long it would take a consumer to pay off their debt if they only made minimum payments.

“This creates several advantages for the consumer,” Young said. “If credit consumers begin contacting credit counseling and debt management agencies when they are only up to 30 percent of their credit limits, for example, their options for reducing their debt will be greatly improved.”

Cardholders with high rates on their balances would be able to transfer the debt to accounts with smaller balances in the debt management program. Or they can transfer money to accounts with better rates, allowing them to reduce debt faster. Carrying low credit card balances and paying on time can positively contribute to a consumer’s credit history.

Other provisions within the Credit CARD Act prohibit lenders from raising interest rates, fees or terms unless they give customers 45 days’ advance notice.

Steven Millstein

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