White House Fact Sheet: Reforms To Protect American Credit Card Holders

Principles for Long-term Credit Card Reform

• First, there have to be strong and reliable protections for consumers.
• Second, all the forms and statements that credit card companies send out have to have plain language that is in plain sight.   
• Third, we have to make sure that people can shop for a credit card that meets their needs without fear of being taken advantage of.  
• Finally, we need more accountability in the system, so that we can hold those responsible who do engage in deceptive practices that hurt families and consumers. 

The Administration applauds the legislative efforts of both the House and the Senate.  By working closely together, the House Financial Services Committee and the Senate Banking Committee were able quickly to enact strong protections that the President signs into law today.  Below we highlight the critical elements of reform in this new law:

• Bans Unfair Rate Increases
• Prevents Unfair Fee Traps
• Plain Sight /Plain Language Disclosures
• Accountability
• Protections for Students and Young People

Key Elements of the Credit  CARD Act of 2009

Bans Unfair Rate Increases: Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked. 

• Bans Retroactive Rate Increases: Bans rate increases on existing balances due to "any time, any reason" or "universal default" and severely restricts retroactive rate increases due to late payment.
• First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year.  Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.

Bans Unfair Fee Traps:

• Ends Late Fee Traps: Institutions will have to give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing.  The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
• Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do.  The act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called "double-cycle" billing.
• Requires Opt-In to Over-Limit Fees: Consumers will find it easier to avoid over-limit fees because institutions will have to obtain a consumer’s permission to process transactions that would place the account over the limit.
• Restrains Unfair Sub-Prime Fees: Fees on subprime, low-limit credit cards will be substantially restricted.
• Limits Fees on Gift and Stored Value Cards: The act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.

Plain Sight /Plain Language Disclosures: Credit card contract terms will be disclosed in language that consumers can see and understand so they can avoid unnecessary costs and manage their finances.

• Plain Language in Plain Sight:  Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers’ accounts afterwards.  For example, pre-opening disclosures will highlight fees consumers may be charged and periodic statements will conspicuously display fees they have paid in the current month and the year to date as well as the reasons for those fees.  These disclosures will help consumers make informed choices about using the right financial products and managing their own financial needs.  Model disclosures will be updated regularly based on reviews of the market, empirical research, and testing with consumers to ensure that disclosures remain clear, useful, and relevant.
• Real Information about the Financial Consequences of Decisions: Issuers will be required to show the consequences to consumers of their credit decisions. 
  
  • Issuers will need to display on periodic statements how long it would take to pay off the existing balance – and the total interest cost – if the consumer paid only the minimum due.
  • Issuers will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months.

Accountability: The act will help ensure accountability from both credit card issuers and regulators who are responsible for preventing unfair practices and enforcing protections.

• Public posting of credit card contracts:  Today credit card contracts are usually available only in hard copy and not in plain language. Now issuers will be required to make contracts available on the Internet in a usable format.  Regulators and consumer advocates will be better able to monitor changes in credit card terms and evaluate whether current disclosures and protections are adequate.
• Holds regulators accountable to enforce the law:  Regulators will be required to report annually to the Congress on their enforcement of credit card protections
• Holds regulators accountable to keep protections current:
  • Regulators will be required to request public input on trends in the credit card market and potential consumer protection issues on a biennial basis to determine what new regulations or disclosures might be needed.
  • Regulators will be required either to update the applicable rules, or to publish findings if they deem further regulation unnecessary.

• Increases penalties:  Card issuers that violate these new restrictions will face significantly higher penalties than under current law, which should make violations less likely in the first place.

Cleans Up Credit Card Practices For Young People at Universities.  The act contains new protections for college students and young adults, including a requirement that card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students.

Remarks by the President at Signing of The Credit Card Accountability, Responsibility And Disclosure Act

THE PRESIDENT: Hello, everybody. Please, have a seat -- I'm sorry. It is a great pleasure to have all of you here at the White House on this gorgeous, sunny day. The sun is shining. The birds are singing. Change is in the air. (Laughter.)

This has been a historic week; a week in which we've cast aside some old divisions and put in place new reforms that will reduce our dependence on foreign oil, prevent fraud against homeowners, and save taxpayers money by preventing wasteful government contracts; a week that marks significant progress in the difficult work of changing our policies and transforming our politics.

But the real test of change ultimately is whether it makes a difference in the lives of the American people. That's what matters to me. That's what matters to my administration. That's what matters to the extraordinary collection of members of Congress that are standing with me here, but also who are in the audience. And we're here today because of a bill that will make a big difference: the Credit Card Accountability, Responsibility, and Disclosure Act.

I want to thank all the members of Congress who were involved in this historic legislation, but I want to give a special shout-out to Chris Dodd, who has been a relentless fighter to get this done. (Applause.) Chris wouldn't give up until he got this legislation passed. He's spent an entire career fighting against special interests and fighting for ordinary people, and this is just the latest example.

I want to thank his partner in crime, Senator Richard Shelby. (Applause.) On the House side, Representatives Barney Frank, Carolyn Maloney, and Luis Gutierrez, for their outstanding work. (Applause.) And I want to also thank all the consumer advocates who are here today who fought long and hard for these kinds of reforms.

You know, most Americans use credit cards all the time. In the majority of cases, this is a convenience or a temporary, occasional crutch: a means to make life a little easier; to make the rare, large, or unexpected purchase that's paid off as quickly as possible.

We've also seen credit cards become, for a minority of customers, part of an uneasy, unstable dependence. Some end up in trouble because of reckless spending or wishful thinking. Some get in over their heads by not using their heads. And I want to be clear: We do not excuse or condone folks who've acted irresponsibly. We don't excuse irresponsibility.

But the reason this legislation is so important is because there are many others -- many who have written me letters, or grabbed my arm along rope lines, or shared their stories while choking back tears -- who relied on credit cards not because they were avoiding responsibilities, but precisely because they wanted to meet their responsibilities -- and got trapped.

These are hardworking people whose hours were cut, or the factory closed, who turned to a credit card to get through a rough month -- which turned into two, or three, or six months without a job. These are parents who found, to their surprise, that their health insurance didn't cover a child's expensive procedure and had to pay the hospital bill; families who saw their mortgage payments jump and used the credit card more often to make up the difference.

These are borrowers who discovered that credit card debt is all too easily a one-way street: It's easy to get in, but almost impossible to get out. It's also, by the way, a lot of small business owners who have helped to finance their dream through credit cards and suddenly, in this economic downturn, find themselves getting hammered.

Part of this is the broader economy, but part of it is the practices of credit card companies. Contracts are drafted not to inform, but to confuse. Mysterious fees appear on statements. Payment deadlines shift. Terms change. Interest rates rise. And suddenly, a credit card becomes less of a lifeline and more of an anchor.

That's what happened to Janet Hard of Freeland, Michigan, who's here today. Where's Janet? Right here. Janet is a nurse. Her husband is a pipefitter. They've got two boys. Janet and her husband have tried to be responsible; she's made her payments on time. But despite this, Janet's interest rate was increased to 24 percent. And that 24 percent applied not just for new purchases, but retroactively to her entire balance. And so, despite making steady payments totaling $2,400 one year, her debt went down only by $350 that year.

And Janet's family is not alone. Over the past decade, credit card debt has increased by 25 percent in our country. Nearly half of all Americans carry a balance on their cards. Those who do, carry an average balance of more than $7,000. And as our economic situation worsened -- and many defaulted on their debt as a result of a lost job, for example -- a vicious cycle ensued. Borrowers couldn't pay their bills, and so lenders raised rates. As rates went up, more borrowers couldn't pay.

Millions of cardholders have seen their interest rates jump in just the past six months. One in five Americans carry a balance that has been charged interest rates above 20 percent. One in five.

I also want to emphasize, these are costs that often hit responsible credit card users. Interest can be charged even if you pay your bill on time. Rates can be increased on outstanding balances even if you aren't late with a payment. And if you sit -- if you start to pay down your balance, which is the right thing to do, a company can require you to pay down the debt with the lowest interest rate first -- instead of the highest -- which makes it much harder to ever get out of the red.

So we're here to put a change to all that. With this bill, we're putting in place some common-sense reforms designed to protect consumers like Janet. I want to be clear about this: Credit card companies provide a valuable service; we don't begrudge them turning a profit. We just want to make sure that they do so while upholding basic standards of fairness, transparency, and accountability. Just as we demand credit card users to act responsibly, we demand that credit card companies act responsibly, too. And that's not too much to ask.

And that's why, because of this new law, statements will be required to tell credit card holders how long it will take to pay off a balance and what it will cost in interest if they only make the minimum monthly payments. We also put a stop to retroactive rate hikes that appear on a bill suddenly with no rhyme or reason.

Every card company will have to post its credit card agreements online, and we'll monitor those agreements to see if new protections are needed. Consumers will have more time to understand their statements as well: Companies will have to mail them 21 days before payment is due, not 14. And this law ends the practice of shifting payment dates. This always used to bug me -- when you'd get like -- suddenly it was due on the 19th when it had been the 31st.

Lastly, among many other provisions, there will be no more sudden charges -- changes to terms and conditions. We require at least 45 days notice if the credit card company is going to change terms and conditions.

So we're not going to give people a free pass; we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives.

And this is a difficult time for our country, born in many ways of our collective failure to live up to our obligations -- to ourselves and to one another. And the fact is, it took a long time to dig ourselves into this economic hole; it's going to take some time to dig ourselves out.

But I'm heartened by what I'm seeing: by the willingness of old adversaries to seek out new partnerships; by the progress we've made these past months to address many of our toughest challenges. And I'm confident that as a nation we will learn the lessons of our recent past and that we will elevate again those values at the heart of our success as a people: hard work over the easy buck, responsibility over recklessness, and, yes, moderation over extravagance.

This work has already begun, and now it continues. I thank the members of Congress for putting their shoulder to the wheel in a bipartisan fashion and getting this piece of legislation done. Congratulations to all of you. The least I can do for you is to sign the thing. (Laughter and applause.)

(The bill is signed.)

All right, everybody. Thank you. Have a great weekend. (Applause.)

Source: White House press release.

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