Credit Card Accountability Responsibility and Disclosure (CARD) Act
I. Understanding the Credit Card Accountability Responsibility and Disclosure (CARD) Act
What is the CARD Act?
The Credit Card Accountability Responsibility and Disclosure (CARD) Act was enacted in 2009 in response to credit card industry practices that harmed consumers through unexpected rate increases, excessive fees, and confusing terms. The law regulates credit card interest rates, fees, billing practices, and disclosures through amendments to the Truth in Lending Act and Regulation Z.
What does the CARD Act regulate?
The CARD Act establishes regulations covering credit card interest rate changes, penalty fees, payment allocation rules, and billing cycle timing. The law mandates specific disclosures about card terms, rate changes, and the consequences of making only minimum payments. Special protections limit marketing to young consumers and require income verification for applicants under 21.
What types of institutions must comply with the CARD Act?
CARD Act requirements apply to all credit card issuers, including banks and non-bank financial institutions offering credit card accounts to consumers. The law covers consumer credit card accounts but generally does not apply to business credit cards or charge cards that must be paid in full each billing cycle.
Who enforces the CARD Act?
The Consumer Financial Protection Bureau holds primary enforcement authority for CARD Act violations. Federal banking regulators enforce compliance for institutions under their supervision. Consumers have a private right of action for certain violations, allowing them to sue card issuers for statutory damages and attorney's fees.
II. Key requirements and protections
Interest rate restrictions
Card issuers cannot increase interest rates on existing balances except in limited circumstances: when a temporary promotional rate expires, a variable rate changes with an index, or the consumer becomes more than 60 days delinquent. Rate increases require 45 days' advance notice. During the first year after account opening, rates cannot increase except for variable rates tied to an index, expiration of promotional rates lasting at least six months, or failure to comply with workout arrangements. Promotional rates must last at least six months.
Fee limitations
The CARD Act restricts penalty fees including late payment and returned payment fees, with specific dollar limits adjusted annually for inflation. Over-limit fees can only be charged if consumers affirmatively opt in to over-limit coverage. For subprime credit cards, fees charged during the first year cannot exceed 25% of the initial credit limit.
Payment allocation and timing rules
When consumers pay more than the minimum payment due, the excess amount must be allocated to the balance with the highest interest rate first. Card issuers must provide at least 21 days between sending a statement and the payment due date. Payment due dates must fall on the same day each month when possible, and if a due date falls on a weekend or holiday, payments received the next business day are timely. Card issuers accepting payments by mail, phone, or online must establish payment cut-off times no earlier than 5:00 PM on the due date.
Disclosure requirements
Credit card issuers must provide clear disclosures of interest rates, fees, and terms in a standardized format. Periodic statements must include information about how long it would take to pay off the current balance making only minimum payments and the total interest that would be paid. When rate increases occur, issuers must provide advance notice explaining the increase and informing consumers of their right to cancel the card before the increase takes effect.
Protections for young consumers
Card issuers cannot issue credit cards to consumers under 21 unless the applicant demonstrates independent income or assets sufficient to repay the credit, or obtains a co-signer over 21 who agrees to be jointly liable. Credit limit increases for consumers under 21 require co-signer approval when accounts were opened with co-signers. Marketing restrictions prohibit credit card marketing on college campuses and limit promotional items offered to induce students to apply for credit cards.
III. Compliance and common violations
Common CARD Act violations
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Credit card issuers encounter CARD Act liability through these operational weaknesses:
- Imposing rate increases on existing balances without proper justification or adequate advance notice, or increasing rates during the first year except for permitted circumstances
- Charging penalty fees exceeding the permitted amounts set by regulation, or failing to adjust fee limits when caps change with inflation
- Failing to allocate payments above the minimum to highest-rate balances first, instead applying excess payments in ways that maximize interest charges
- Providing inadequate disclosures about minimum payment consequences, payoff timeframes, or rate increases
- Marketing to or issuing cards to consumers under 21 without proper income verification or required co-signers, or increasing credit limits for young consumers without co-signer approval
- Creating payment processing systems with unreasonably early cut-off times, accepting payment holidays as due dates, or failing to provide the required 21-day grace period
- Charging over-limit fees without obtaining affirmative consumer opt-in to over-limit coverage
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Penalties and enforcement consequences
CARD Act violations result in civil money penalties imposed by the CFPB, with amounts depending on violation severity and scope. Issuers must provide restitution to affected consumers, refunding improperly charged fees or interest. Consent orders require corrective action including systems changes, enhanced monitoring, and reporting to regulators.
Class action litigation represents a significant risk, as consumers can pursue statutory damages, actual damages, and attorney's fees for violations. Public enforcement actions damage issuer reputation and can affect customer acquisition and retention.
How credit card issuers can ensure compliance
Compliance requires systems that automatically track rate increase timing and ensure proper advance notice before implementing changes. Payment allocation systems must direct amounts exceeding the minimum payment to highest-rate balances first, with testing to verify correct allocation.
Fee calculation systems should incorporate current regulatory limits and adjust automatically when caps change, with controls preventing excessive fees or unauthorized over-limit charges. Disclosure generation and delivery systems must produce required notices in compliant formats and ensure timely delivery.
Age and income verification processes for applicants under 21 must confirm either independent ability to repay or obtain appropriate co-signers before account opening. Payment processing systems should establish cut-off times and due date handling that comply with timing requirements.
Compliance audits should review all aspects of CARD Act requirements, testing systems, reviewing sample accounts, and verifying proper implementation of rate, fee, payment, and disclosure rules. Staff training ensures employees understand CARD Act requirements and can identify potential compliance issues.
IV. Bottom line
The CARD Act fundamentally changed credit card industry practices, establishing protections around interest rates, fees, and payment processing. Compliance requires robust systems and ongoing monitoring to ensure rate changes, fee assessments, payment allocation, and disclosures meet regulatory requirements.
LoanPro's platform supports CARD Act compliance for credit products through features that help manage payment allocation, track rate changes, and generate required disclosures. If you're looking to strengthen your credit card compliance program or ensure systems meet CARD Act requirements, reach out to us. We'd love to discuss your strategy and what's worked well for our clients.