A few provisions of the Credit Card Accountability, Responsibility, and Disclosure Act that President Obama signed into law May 2009 took effect immediately, and a few didn't take effect until August of that year. But most of the provisions took effect February 22, 2010.

While these new rules are a significant improvement from the status quo that pervaded credit card policies for years, they are not enough. In the months leading up to the changes that took effect February 22, 2010, credit card issuers adopted tricks and traps intended to evade the law. The Federal Reserve Board, which wrote the rules implementing the Act, banned two of these evasions—pick-a-rate and variable-rate floors, which are described below. Clearly the industry intends to find ways to by-pass the law.

Credit card tricks and traps, coupled with abusive bank overdraft charges and unfair mortgage products, show the need for the Consumer Financial Protection Bureau—an independent financial regulator whose mission is to set and enforce strong rules that ensure borrowers receive fair and affordable financial products. Congress can't pass a law each time abusive lenders come up with new bad practices and products. The CFPB, now headed by newly appointed Richard Cordray, consolidates under one rook authority that had been scattered among several federal agencies—and largely ignored by them.

As of Feb. 22, 2010, issuers:

  • Can no longer increase the interest rate charged on an existing balance unless a cardholder is 60 days or more behind in payments, he or she has agreed to a variable rate or a promotional rate ends. If a customer's rate is raised because of a delinquency, but he or she then pays on time for the following six consecutive months, the lender must revert to charging the previous, lower rate.
  • Must apply all payments above the monthly minimum to the balance carrying the highest interest rate.
  • Must use only the current month's balance to calculate interest charges. This means issuers can no longer calculate interest using the average of a customer's current and previous monthly balance, a method known as double-cycle billing.
  • Must stop charging over-limit fees unless a customer has been explicitly asked and has affirmatively said he or she wants to be allowed to exceed the credit limit and understands a fee will be incurred for doing so.
  • Must notify a customer 45 days before making a major change to the terms of a credit card contract.
  • Must give 21 days between the time they mail a bill and when they will impose a late fee.
  • Must limit fees charged during the first year a credit card account is opened to no more than 25% of the initial credit limit. But this does not include late charges, over-the-limit fees or charges to open an account, such as an application fee.
  • Can no longer use two common methods to manipulate variable rates. One is to set an initial interest rate as a floor, so that rates can vary upwards but never go down from where they start. The second is to peg an interest rate to the highest prime rate over many months, rather than to peg it to the current prime rate.
  • Must give greater consideration to a customer's ability to repay before issuing credit or increasing a credit limit.


But issuers still can:

  • Impose many other, often hard-to-understand charges, such as fees on purchases abroad or for having a zero balance.
  • Close accounts or reduce lines of credit without notice for any reason, although they must wait 45 days before they can impose an over-the-limit fee or a penalty rate on a newly lowered credit limit.
  • Arbitrarily change any or all terms for credit cards issued to small businesses.
  • Raise your interest rate without limit on future purchases as long as they give 45 days notice. If consumers don't want to accept the higher rate, they have the right to close the account and pay it off over five years.
  • Require card holders to address grievances through mandatory arbitration rather than the courts.

Consumer Action prepared a detailed fact sheet of the CARD Act's provisions

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