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Credit Card Accountability, Responsibility, and Disclosure Act of 2009
The credit card liability and transparency law, also known as, CARD Act is a legislation that protects consumers from possible abuse by credit card issuers. The law was passed by the United States Congress in 2009 and signed by President Barack Obama on May 22, 2009. The Bill was supported by both the Senate and the House of Representatives. It contains comprehensive information and offers consumers a fair and transparent credit card plan options.
A Little More on What is the Credit Card Accountability, Responsibility, and Disclosure Act Of 2009
Credit CARD Act 2009 Provisions
There are various provisions included in the bill aimed at limiting how credit card companies can impose charges. However, they do not cover things such as rate caps, price controls, or fee settings. They include the following:
- Providing consumers with enough time to pay their bills
After mailing the bill, consumers should be given a grace payment period of not less than 21. Credit card companies should not push consumers to make a payment on weekends or in the middle of the week. Payment should be at the end of the month, with deadlines scheduled during business days and not during weekends or holidays.
- Prohibits retroactive rate increases
In case of any plan to increase the rates, the credit card companies should give consumers a notice period of not less than 45 days. The companies are not to change any contract terms within a year. In addition, the introductory rates are required to last for at least six months before changing.
The companies are also supposed to issue consumers with statements highlighting how long it will take them to settle their existing balance if paid in minimum. They must also show the amount payable and total interest cost that consumers should pay off as balance in the 36 months.
- Excludes fee Harvester Cards
The bill restricts the fees that apply to low-balance cards sold to the consumer with poor credit scores. For such cards, there is an up-front fee charged, which should be more than the remaining credit. There is restriction by the act regarding fee charges for gift cards as well as other prepaid cards.
- Removes excessive marketing to young people
The act restricts credit card companies from providing consumers under the age of 21 years with credit cards. Such consumers must first give proof of their independent earning (income) before applying for the card. Another alternative is for them to get a co-signer before they can apply for one.
The act also prohibits credit card companies from offering consumers under the age of 21 years who are also credit care holders with incentives.
Why is the Credit CARD Act of 2009 Important
The bill has helped consumers to save money related to late fees of over $7 billion. It has also protected them from losing money related to over-limit fee charges. For instance, between 2011-2014, consumers were able to save over $9 billion. In other words, the law protects consumers from losing money through unnecessary fee charges.
It also protects consumers from harmful and confusing billing, including harmful business practices. The law restricts creditors from raising fees and interest rates on credit cards. If the credit card issuers want to raise such fees or charges, there are regulated billing practices and standardized disclosures they are required to follow.
References for Credit Cared Accountability Responsibility and Disclosure Act of 2009
Academic Research for Credit Cared Accountability Responsibility and Disclosure Act of 2009
Financial knowledge and credit card behavior of college students, Robb, C. A. (2011). Financial knowledge and credit card behavior of college students. Journal of family and economic issues, 32(4), 690-698. This study examined the relationship between financial knowledge and credit card behavior of college students. The widespread availability of credit cards has raised concerns over how college students might use those cards given the negative consequences (both immediate and long-term) associated with credit abuse and mismanagement. Using a sample of 1,354 students from a major southeastern university, results suggest that financial knowledge is a significant factor in the credit card decisions of college students. Students with higher scores on a measure of personal financial knowledge are more likely to engage in more responsible credit card use. Specific behaviors chosen have been associated with greater costs of borrowing and adverse economic consequences in the past.
Antecedents and consequences of risky credit behavior among college students: Application and extension of the theory of planned behavior, Xiao, J. J., Tang, C., Serido, J., & Shim, S. (2011). Antecedents and consequences of risky credit behavior among college students: Application and extension of the theory of planned behavior. Journal of Public Policy & Marketing, 30(2), 239-245. The Credit Card Act of 2009 reflects increased public policy concern about the risky credit behaviors of young adults. This act promotes increased responsibility of parents and implies that young adults must acquire financial knowledge and practice responsible financial behaviors. This study addresses this public issue by investigating the psychological processes underlying young adults’ risky credit card behaviors and the role of parents and financial knowledge in the financial behavior of young adults. A conceptual model based on an extension of the theory of planned behavior is proposed. The authors collected data from a sample of first-year students at a major public university. The results show that both parental norm and parental socioeconomic status are important factors that influence students’ risky credit behaviors. Furthermore, subjective financial knowledge does more to prevent risky credit behaviors than objective financial knowledge. Finally, behavioral intention is the most important factor in preventing risky credit behaviors and credit card debt accumulation. The authors draw on their findings to provide public policy implications.
Regulating consumer financial products: Evidence from credit cards, Agarwal, S., Chomsisengphet, S., Mahoney, N., & Stroebel, J. (2014). Regulating consumer financial products: Evidence from credit cards. The Quarterly Journal of Economics, 130(1), 111-164. We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act in the United States. Using a difference-in- differences research design and a unique panel data set covering over 160 million credit card accounts, we find that regulatory limits on credit card fees reduced overall borrowing costs to consumers by an annualized 1.7% of average daily balances, with a decline of more than 5.5% for consumers with FICO scores below 660. Consistent with a model of low fee salience and limited market competition, we find no evidence of an offsetting increase in interest charges or a reduction in volume of credit, although we are unable to analyze longer-run effects on investments or industry structure. Taken together, we estimate that the CARD Act fee reductions have saved U.S. consumers $12.6 billion per year. We also analyze the CARD Act requirement to disclose the interest savings from paying off balances in 36 months rather than only making minimum payments. We find that this “nudge” increased the number of account holders making the 36-month payment value by 0.5 percentage points on a base of 5.7%.
Financial literacy among the young, Lusardi, A., Mitchell, O. S., & Curto, V. (2010). Financial literacy among the young. Journal of consumer affairs, 44(2), 358-380. We examined financial literacy among the young using data from the 1997 National Longitudinal Survey of Youth. We showed that financial literacy is low among the young; fewer than one-third of young adults possess basic knowledge of interest rates, inflation, and risk diversification. Financial literacy is strongly related to sociodemographic characteristics and family financial sophistication. Specifically, a college-educated male whose parents had stocks and retirement savings is about 50 percentage points more likely to know about risk diversification than a female with less than a high school education whose parents were not wealthy. These findings have implications for consumer policy.
Transformative service research: An agenda for the future, Anderson, L., Ostrom, A. L., Corus, C., Fisk, R. P., Gallan, A. S., Giraldo, M., … & Shirahada, K. (2013). Transformative service research: An agenda for the future. Journal of Business Research, 66(8), 1203-1210. This article conceptualizes and presents a research agenda for the emerging area of transformative service research, which lies at the intersection of service research and transformative consumer research and focuses on well-being outcomes related to service and services. A conceptual framework provides a big-picture view of how the interaction between service entities (e.g., individual service employees, service processes or offerings, organizations) and consumer entities (e.g., individuals, collectives such as families or communities, the ecosystem) influences the well-being outcomes of both. Research questions derived from the framework in the context of financial services, health care, and social services help catalyze new research in the transformative service research domain.
Unstacking the Deck-Contract Manipulation and Credit Card Accountability, Zacks, E. A. (2009). Unstacking the Deck-Contract Manipulation and Credit Card Accountability. U. Cin. L. Rev., 78, 1471. This Article examines and critiques the revised legal framework for interpreting and enforcing consumer credit card agreements under the federal Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. Credit card issuers have historically prepared credit card agreements in their favor in a “race to the bottom,” regardless of regulatory requirements or enforcement mechanisms. This Article argues that many reforms mandated by the CARD Act may be ineffective, or at best, incomplete, with respect to creating effective and informed contracts. Rather than addressing fundamental flaws in the credit card agreement negotiation context regarding asymmetries of information, incentives, and resources, the CARD Act generally attempts to solve problems by relying on passive disclosure processes that are based on unrealistic assumptions about individual debtors’ likely responses and existing enforcement regimes. Instead, this Article recommends establishing ex ante default rules and ex post presumptions of enforceability that align issuers’ profit incentives with the desire for meaningful and timely disclosure of material contract terms. The contractual regime’s flaws could be further remedied through mechanisms designed to demonstrate and ensure credit card holders’ knowing assent to the initial or amended terms of credit card agreements. Finally, the limits of the CARD Act could be addressed through other ex post mechanisms designed to address contractual issues after they arise, including permitting collective remedial actions with respect to similarly situated holders. These solutions are offered not as a perfect antidote to the asymmetries identified above, which may be structural, but instead as tools to assist in preventing, as well as providing redress for, outcomes that are predicated on the exploitation of those same asymmetries.
Consumer experiences with credit cards, Canner, G. B., & Elliehausen, G. E. (2013). Consumer experiences with credit cards. Federal Reserve Bulletin, (December), 1-36. This article examines consumers’ behavior, experiences, and attitudes regarding credit cards in the aftermath of the Great Recession and the implementation of the Credit Card Accountability Responsibility and Disclosure Act of 2009. The data for the article are primarily from a nationwide consumer survey sponsored by the Federal Reserve that was conducted in February 2012. The article discusses economic conditions in the period leading up to the survey because recent events may greatly influence survey responses. Many survey questions were identical or similar to those in earlier consumer surveys, making it possible to track changes in consumer experiences with, and attitudes about, this important financial product.
Federal Payroll, Gift, and Prepaid Card Developments: FDIC Deposit Insurance Eligibility and the Credit CARD Act of 2009, Hughes, S. J. (2009). Federal Payroll, Gift, and Prepaid Card Developments: FDIC Deposit Insurance Eligibility and the Credit CARD Act of 2009. Bus. Law., 65, 261. Prepaid and other stored-value products have grown into major tools for making retail payments and payments of wages to employees. This article discusses two major developments in federal law that pertain to stored-value products – the November 2008 – revision of primary guidance from the Federal Deposit Insurance Corporation on the scope of eligibility of payroll cards for deposit insurance, and Congress’ May, 2009 enactment of the CARD Act, which takes effect on February 22, 2010. The CARD Act is the first effort by the federal government to regulate gift cards. It established federal standards relating to subjects on which state laws varied widely, and preempts state laws. In addition, the CARD Act gave to the Board of Governors of the Federal Reserve System rule making authority over gift cards, general-use prepaid cards, and electronic gift certificates. The Act also grants to the Department of the Treasury authority to adopt comprehensive regulations concerning the issuance, sale, redemption and international transport of stored-value cards. This authority reflects growing concerns that money launderers are increasingly able to move funds through stored-value products.
Credit card pricing: The card act and beyond, Bar-Gill, O., & Bubb, R. (2011). Credit card pricing: The card act and beyond. Cornell L. Rev., 97, 967. We take a fresh look at the concerns about credit card pricing and empirically investigate whether the Credit CARD Act of 2009 has been successful in addressing those concerns. The rational choice theory of credit card pricing, which posits that issuers use back-end fees to adjust the price of credit to reflect new information about borrowers’ credit risk, predicts that issuers will respond to the Act by using alternative ways to price risk. In contrast, the behavioral economics theory, which posits that issuers use back-end fees because they are not salient to consumers, predicts that issuers will respond by increasing unregulated non-salient prices. If the market is competitive, we argue that the CARD Act should also result in increases in some salient, up-front prices. But we show that if issuers have market power, reductions in non-salient fees may not result in concomitant increases in salient charges. We test these predictions using two datasets on credit card contract terms before and after the CARD Act rules went into effect. We find that the rules have substantially reduced the back-end fees directly regulated by the Act, including late fees and over-the-limit fees. However, unregulated contract terms, such as annual fees and purchase interest rates, have changed little. Post-CARD Act, consumers continue to face high long-term prices and low short-term prices, and imperfectly rational consumers still find it difficult to understand the cost of credit card borrowing. We thus consider potential improvements to the regulatory framework. We argue that improved disclosures that present to consumers the aggregate cost of credit under the contract, based on information about the borrower’s likely use of credit, would improve consumer outcomes. Furthermore, we suggest that regulators, rather than focusing on prices that are ‘too high,’ should consider limiting the ability of issuers to charge introductory teaser interest rates that are in a sense ‘too low.’
Financial literacy and credit cards: A multi-campus survey, Ludlum, M., Tilker, K., Ritter, D., Cowart, T. W., Xu, W., & Smith, B. C. (2012). Financial literacy and credit cards: A multi-campus survey. In America, credit cards on campus have been a disaster, leaving students buried in debt before graduation, often with little hope of paying off the debt before high fees and interest double the amount. This research details a multi-campus survey of current American college students and their use of credit cards. In the current project, we surveyed business students across five campuses in the United States (n=725) in fall, 2009. We found significant differences between students on their knowledge of credit cards and several demographic factors. We conclude by discussing the implications for further research in this area.
Credit card accountability, responsibility and disclosure act of 2009: protecting young consumers or impinging on their financial freedom, Wood, K. A. (2010). Credit card accountability, responsibility and disclosure act of 2009: protecting young consumers or impinging on their financial freedom. Brook. J. Corp. Fin. & Com. L., 5, 159.