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How does the CARD Act protect consumers?

Nearly six years ago, the Credit Card Accountability, Responsibility, and Disclosure Act, or CARD Act, was signed into law. The goal of the CARD Act was to bring fairness, transparency and accountability to the credit card industry. But how exactly does it help Massachusetts consumers with their credit card debt?

According to the Consumer Financial Protection Bureau, or CFPB, the CARD Act is helping consumers with interest rates, late fees, overlimit fees and overall costs. First, two provisions in the CARD Act kept interest rates from rising as dramatically or unexpectedly as they did in the past. One provision prohibits card issuers from raising interest rates on existing balances until the cardholder has missed two payments. The other provision requires issuers to give cardholders 45 days' notice and the option to cancel the account before higher interest rates go into effect.

Second, the CARD Act regulated how and when credit card fees may be imposed. For example, it requires card issuers to make payments due the same day every month and give customers at least 21 days to pay before assessing a late fee. It also defines an on-time payment as one made by 5:00 p.m. on the day it is due. Moreover, late fees and other penalties must be "reasonable and proportional" in relation to the violation.

Third, the CARD Act virtually eliminated overlimit fees. An overlimit fee is a fee charged when a consumer makes a purchase that exceeds the credit limit. Previously, most issuers would allow such purchases, then charge the consumer a fee - or multiple fees in one billing statement if the consumer made several purchases that exceeded the credit limit. Now, issuers may only charge one overlimit fee per statement and only if the consumer has expressly allowed for overlimit transactions.

Fourth, the CARD Act has brought more clarity to statements and other information that card issuers share with consumers. Now, for example, billing statements must clearly state how long it will take to pay off the balance by making minimum payments and the cost of doing so compared to paying off the balance in three years. Statements must also disclose the amount of interest and fees charged year to date. If consumers have noticed these positive changes to their credit card statements over the past few years, they have the CARD Act to thank.

Source: Consumer Financial Protection Bureau, "CARD Act factsheet," accessed April 13, 2015

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