On Friday, May 22, 2009, President Barack Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Act). Many of the key provisions do not become effective until February 2010, but several provisions require card issuers to change their practices by August 20, 2009. The Act fundamentally changes certain aspects of the law regarding credit cards and gift cards. This newsletter provides a general overview of the Act’s key provisions that will affect issuers of credit cards and gift cards.
Title I: Consumer Protection
Credit card issuers who wish to increase an annual percentage rate (APR) that is not applicable to an outstanding balance must provide 45 days’ written notice of the new terms to card holders before the new APR can go into effect. Each notice must contain a conspicuous statement notifying the consumer of the right to cancel the account before the effective date of the APR increase. These provisions become effective 90 days after the date of enactment of the Act.
The Act prohibits card issuers (with a few exceptions) from increasing the APR, fees, or finance charges either within the first year of opening the account or to outstanding balances unless minimum payment has not been made by the consumer within 60 days after the due date. Card issuers must disclose the reason for the increase and, if the consumer makes minimum payments, the increase will terminate no later than six months after it was imposed.
In other sweeping changes, Title I also:
Title II: Enhanced Consumer Disclosures
The Act requires creditors to provide additional information on monthly billing statements, including:
The first four items above must be displayed conspicuously and prominently in a table on the billing statement.
Additionally, Title II of the Act requires the following:
Title III: Protection of Young Consumers
This section addresses cardholders under the age of 21 and college and university students. The Act provides that no credit cards will be issued to consumers under 21 unless there is a signed application that (a) has the signature of a co-signer such as a parent, legal guardian, spouse, or any other individual over 21, or (b) includes a submission by the consumer of financial information indicating an independent means of repaying the debt borrowed.
Title III also:
Title IV: Gift Cards
The Act provides new restrictions on gift certificates, store gift cards, and general-use prepaid cards. Issuers of these items may charge a monthly dormancy fee or a service charge only if there has been no activity on the card for a 12-month period and the issuers have disclosed that a fee may be assessed, the amount of the fee, and how often it may be assessed.
The Act also prohibits the sale of these items with expiration dates, unless (1) the expiration date is no earlier than five years after the gift certificate was issued or the date on which funds were last loaded onto a store gift card or a general-use prepaid card; and (2) the terms of expiration are stated clearly and conspicuously.
Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:
Michael C. Lueder
Chair, Consumer Financial Services Litigation Practice
Martin J. Bishop
Michael D. Leffel