Credit Card Accountability, Responsibility, and Disclosure Act of 2009

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

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 is a federal law designed to protect credit card users from abusive lending practices by card issuers. Commonly known as the CARD Act, this law's primary goals are the reduction of unexpected fees and improvements in the disclosure of costs and penalties.

Understanding the Credit Card Accountability, Responsibility, and Disclosure Act of 2009

The U.S. Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act in May 2009, and President Barack Obama signed it into law shortly afterward. It took effect in 2010.

Before the act's passage, the language in credit card agreements was often quite opaque and literally difficult to read; important terms were buried in reams of legalese, and the information provided was inconsistent among different issuers, making it hard for consumers to compare products. The act has made the language, terms, and disclosure of penalties and fees much more transparent, both in the initial card agreements and in monthly statements.

The Consumer Financial Protection Bureau (CFPB) is responsible for developing, implementing, and enforcing the rules to which card issuers must comply. In the first four years of the CARD Act’s existence, the CFPB in a 2015 report found that the law had led to an overall decrease in the cost of consumer credit by two percentage points. Over-limit fees had been almost completely eliminated, and the average late fee dropped from $35 to $27.

Provisions of the Credit Card Accountability, Responsibility, and Disclosure Act

A series of guidelines written by Congress, the CARD Act is divided into five sections.

Some highlights of the provisions include:

The CARD Act mandated the use of Schumer boxes (named for Senator Charles Schumer) — the easy-to-read tables that credit card issuers now use to clearly disclose important rate, fee, and term and condition information.

Shortcomings of the CARD Act

Since its passage in 2009, consumer advocates have argued that the law does not go far enough in prohibiting abusive or unfair practices. Some interest rate increases, such as those resulting directly from Federal Reserve rate hikes or from the end of an introductory period, remain allowable without advance notice from card issuers. Deferred interest charges, or charges compiled retroactively at the end of an introductory interest-free period, are still allowed under the law. Perks used to market cards, such as identity-theft protection, rewards programs, or penalty-free grace periods, remain generally unregulated as well. The law also fails to regulate cards issued in the name of a business.

Financial industry groups also criticize the law for driving up interest rates and annual fees; they also claim it's forced card issuers to lower card credit limits and increase customer qualifications, making it difficult for people with uneven or limited credit histories to obtain credit cards that will cover their needs.