The Credit Card Act of 2009

November 2009 Navy

by LCDR Marc J. Soss, SC, USN

The “Credit Card Act of 2009” (the “Act” and H.R. 627) was signed into law on 22 May 2009. The Act amends provisions of the “Truth in Lending Act” and “Electronic Fund Transfer Act” and changes the way credit card companies treat their customers. The various provisions of the Act will go into effect at different times, starting ninety (90) days from 22 May 2009 to fifteen (15) months thereafter. The majority of the Act’s provisions go into effect on 22 Feb. 2010.

Interest Rate Limitations and Modifications

Retroactive Interest-rate Increases

The Act provides that individuals may not be subject to a retroactive interest-rate increase on an existing account balance unless his or her payments are sixty (60) days past due. An individual can have the prior rate reinstated by subsequently paying the monthly minimum payment on time for six (6) months. These provisions will become effective ninety (90) days after enactment of the Act.

Double-cycle Billing

The Act halts the practice of “doublecycle billing.” This practice involves the assessment of interest on a late-paying consumer’s prior month balance that had been paid in full in addition to a late balance.

Advance Notice of Changes

To be effective, credit card companies will be required to provide at least forty-five (45) days prior written notice (the “notice period”) of any interest rate increase. The notice period will also apply to any change in fees or finance charges. The notice must

1. be made in a clear and conspicuous manner, and
2. contain a statement of the individual’s right to cancel the card account (without it constituting an agreement default). This provision will become effective ninety (90) days after enactment of the Act.

First Year Increases and Promotional Rates

During the first year the credit card account is opened, the Act precludes any

1. interest rate increase;
2. fee; or
3. finance charge.

With promotional card rates, no increase will be effective during the initial six (6) month period.

Interest Rate, Fee, and Finance Charges

The Act precludes a credit card company from increasing an annual percentage rate, fee, or finance charge on an outstanding balance. The prohibition will not be applicable to:

1. an annual percentage rate increase upon expiration of a specified term;
2. an increase resulting from completion of a workout or temporary hardship arrangement; or
3. an increase resulting from the consumer’s failure to make a minimum account payment within sixty (60) days after its due date.

Fee Restriction

Over-The-Limit Transaction

Restricts the imposition of an over-the-limit fee, if the credit card account limit is exceeded, only to once during a billing cycle. It also provides that an overthe- limit fee may only be imposed only once in each of the two (2) subsequent billing cycles.

Method of Payment Fees

Provides that a credit card company may not impose a separate fee for allowing a consumer to repay an extension of credit or finance charge by mail, electronic transfer, telephone authorization, or other means. An exception involves a fee for an expedited service.

Application of Payments

Receipt of Payments

Upon receipt of a customer payment, the card issuer will be required to apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest. Any remaining payment must be applied to each successive balance bearing the next highest rate of interest, until the payment is exhausted.

Deadline

A credit card company’s receipt of a payment on or before 5 p.m. of its due date will be on time. Similarly, no late fees will apply if a payment’s due date falls on a Sunday or holiday and the consumer’s payment arrives on the following day.

Young Consumers and Students

The Act provides that no credit card may be issued to an individual who has not attained the age of 21 without

1. the signature of a cosigner (parent, legal guardian, spouse, or any other individual over the age of 21); or
2. the submission of financial information indicating a means of repaying the account. A cosigner’s approval will be required to increase the credit card line of credit.

Gift Cards

The Electronic Fund Transfer Act is amended to provide that it is unlawful for any entity to impose a fee (dormancy, inactivity, or service) with respect to a gift certificate, store gift card, or general-use prepaid card. The law also bans expiration dates earlier than five years after the card’s original issue date. An exception to the law will apply if

1. there is no activity within the 12-month period ending on the date the charge or fee is imposed;
2. the account disclosure requirements are satisfied; and
3. not more than one fee is charged in any given month.