Answering Your Questions About the Credit CARD Act of 2009

by Tom Fragala   

On May 22, 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009.  This law was designed to substantially increase protections for consumers. While there has been quite a bit of media buzz about the law, it doesn't address every shortcoming that consumer advocates have criticized. Here are some of the details you may have missed.

When does the Credit CARD Act of 2009 go into effect?

Not until late February 2010. This gives credit card issuers time to prepare for compliance and come up with alternatives to cover revenue they may lose by complying with the law.

Will interest rates be capped?

No, although some legislators, such as Sen. Chris Dodd (D-CT), believe this still needs to happen.

Is the credit card industry going to stiff you now?

There have been a lot of anecdotal reports that this law will cost many consumers more moving forward. Many believe that the credit card companies will adopt new tactics to recoup revenue lost after the new law's tighter restrictions go in effect. You'll hear talk about the return of annual fees, other fees, fewer rewards and less favorable rates for those with good credit. Much of this is conjecture at this point, but there is evidence that annual credit card fees are making a comeback. During the first three months of 2009, 27 percent of credit card offers mailed to U.S. households carried an annual fee, an increase from 18 percent just a year ago. 

We recommend you stay on top of credit card news for the next several months. And if you receive any correspondence from your credit card issuer, read it closely. You can expect that your rates will rise a bit — this could be a concern if you don't always pay your bills on time or have an irregular income.

What about interchange fees?

One of the more controversial credit card concepts is "interchange fees," the 2 to 3 percent of each transaction paid by the merchant so they can accept major credit cards. Consumers are indirectly affected by interchange fees, because they increase the cost of everything you buy, even if you pay in cash. The new law doesn't affect interchange fees at all. Although it was debated before Congress, proposed changes to these fees were stripped from the final bill.

What about business credit cards?

Depending on how your small business is incorporated and what kind of card you have, you may have no new protections under the law. The problem is that the new law actually amends the Truth in Lending Act, which only concerns consumer loans and doesn't apply to corporate cards. So, if you use your personal card to make business purchases, you'll be covered under the new law. Also, those business cards for which you're personally responsible should be covered as well. However, with businesses that use traditional corporate cards (where the business is the one getting credit), the old rules will apply.

Will your credit card bill go down?

Hardly. The law doesn't retroactively change anyone's account. Over time, some people might pay less in extra fees than they might have otherwise, but it won't affect your balance one bit. In fact, with the re-emergence of annual fees, you might end up paying more than you used to if you've always paid your entire balance on time each month. (Ironically, credit card companies call people like that "deadbeats," because the companies don't profit from their business.)