Consumers face increasingly complex financial conditions. The profit motive of publicly-held banks and other financial institutions sometimes leads to business practices that harm consumers and, as a direct result, harms the broader economy.
Consumer Credit Resources:
Overview of the CARD Act
The Credit CARD Act protects consumers in the following ways:
Ban on Retroactive Rate Increases.
The Act prohibits retroactive interest rate increases and eliminates "universal default," a practice where a credit card issuer raises interest rates due to lateness or default with other creditors (despite the cardholder being in good standing with the credit card issuer in question).
No First Year Rate Increases.
With certain exceptions, credit card issuers may not increase rates the first year of the account.
Due Dates for Credit Card Bills.
Credit card statements must be mailed 21 days before the due date so that card holders have a reasonable time to pay their bill. Due dates must be on the same day of each month. If the due date falls on a day in which the credit card company does not receive or accept payments by mail (including weekends and holidays), the credit card company may not treat a payment received on the next business day as late.
The Act, with certain exceptions, prohibits interest charges through "double-cycle billing, "a practice which takes the average daily balance for the current and previous billing cycles to calculate finance charges.
Credit card companies may not charge "over-the-limit" fees unless the cardholder receives notice of such fee and allows the company to complete the over-the-limit transaction. No more than one "over-the-limit" fee may charged per billing cycle.
Except for live services to make an expedited payment, credit card companies may not charge fees for accepting payment by mail, telephone, or electronic transfer. Any penalty fees assessed must be reasonable and proportional to the violation.
Youth Credit Cards.
Credit cards issued to persons under the age of 21 must have a co-signor or proof that the applicant has an independent means of repaying any credit. A credit card company may also not offer a student at an institution of higher education any tangible item to induce him to apply for a credit card if this offer is madeon or near a school or school- sponsored event.
The Act requires a five-year life span on gift cards and certificates from the date on which the certificate was issued, or the date on which funds were last loaded onto the card. The terms of expiration must be clearly and conspicuously stated on the card. Companies issuing gift cards are also prohibited, with certain exceptions, from imposing a dormancy (inactivity) fee or service fee unless the card has been inactive for at least 12 months.
Consumer Protections from Credit Repair Organizations ("CROA")
Credit repair clinics often promise consumers that they will permanently remove negative information from credit reports, for a fee.
Prohibited Practices Under the CROA
Pursuant to Title 15 of the United States Code Section 1679, the CROA prohibits credit repair organizations from the following:
- Making any statement which is untrue or misleading with respect to a consumer's credit standing
- Making any statement to alter a consumer's identification for the purpose of either preventing the display of the consumer's credit history or concealing negative information
- Making any untrue or misleading representation with regard to the organization's services
- Engaging in any act of fraud or deception in connection with the offer or sale of services
Among the acts that would constitute fraud or deception by a credit repair organization are receiving payment before the full performance of a promised service, or promising to remove information that cannot legally be removed (such as a record of bankruptcy before 10 years have expired).
These prohibitions apply to:
- any consumer reporting agency; or
- any person who has extended credit to a consumer; or
- any person to whom the consumer has applied or is applying for an extension of credit.
The services that a credit repair organization promises to perform must be detailed in a written contract, including how long it will take to fully perform the services. In addition, the organization is obligated to inform consumers of their rights in a separate written disclosure statement, before entering into a contract.