A credit card has become an inseparable part of modern financial life, offering convenience, rewards, and revolving credit usable for both everyday purchases and emergencies. The foundation of using credit cards is supported by a complex network of laws and regulations developed to protect consumers from unfair practices and to ensure transparency in the credit market. These rules are essential for credit card holders to make informed decisions and safeguard their rights. This article summarizes key credit card regulations and the resulting rights that consumers have.
Truth in Lending Act (TILA)
The TILA is one of the foundational laws regulating the use of credit cards. Instituted in 1968, the TILA mandates clear disclosure of interest rates, fees, and other charges to be levied on credit card consumers. Under TILA, card issuers must provide consumers with a standardized disclosure—the now familiar Schumer Box—detailing key terms of the account, including the APR, the method for determining the minimum payment, how long it will take to pay off the balance, and the total interest paid if only the minimum payments are made.
Of equal or perhaps greater importance is the protection provided by TILA against unauthorized transactions. For instance, if a credit card is lost or stolen and unauthorized charges occur, liability is limited to $50, provided the consumer reports the loss promptly. Consumers also have the right under TILA to dispute billing errors and withhold payment if they notify the creditor within 60 days from the statement date for defective goods or services purchased with a credit card.
The Credit CARD Act of 2009
The reforms brought by the CARD Act of 2009 were significant in protecting consumers from predatory practices. Commonly known as the ‘CARD Act,’ this law covers various aspects, from interest rate hikes to fees charged on credit cards, and the marketing of these cards to young adults.
One key provision of the CARD Act is the requirement for credit card issuers to provide 45-day notice before raising interest rates, fees, or otherwise significantly changing the terms of the card. This gives consumers ample time to consider the changes and, if they choose, close accounts without a fee. Additionally, under the CARD Act, retroactive rate increases on outstanding balances are prohibited; new interest rates only apply to new charges after the rate increase. Another critical provision of the CARD Act pertains to restraining fees. It restricts late-payment fees, over-limit fees, and other penalties, requiring that such fees be reasonable and proportional to the violation.
The CARD Act also includes specific protections for young consumers. Credit card companies cannot issue credit cards to anyone under the age of 21 unless they have a co-signer or reasonable proof that they can repay the credit extended. This protects young adults from accumulating too much debt without considering the possible long-term implications.
The Fair Credit Billing Act (FCBA)
The FCBA allows consumers to report any errors on a credit card statement and withhold payment while the creditor investigates the error. However, under the FCBA, a consumer must report the error to the credit card issuer no later than 60 days after the date of the statement reflecting the billing error.
The issuer must respond with its investigation and resolve the dispute within two billing cycles, but no later than 90 days. During the investigation, the issuer may not report the disputed charge as delinquent or take collection action. If the charge was made in error, the cardholder is not obligated to pay it. If no error was found, the issuer will send an explanation, and the cardholder must pay the disputed charge.
The Fair Credit Reporting Act (FCRA)
The FCRA controls the collection, use, and dissemination of credit information by credit reporting agencies. While not specifically a credit-card law, the FCRA plays an essential role in ensuring that cardholder rights to accurate and up-to-date information about their credit history are safeguarded. The FCRA entitles all consumers to one free credit report from each of the three major credit reporting agencies—Equifax, Experian, and TransUnion—once every 12 months. This allows individuals to check their credit reports for mistakes or fraud, which they can dispute if necessary. The FCRA also limits who may view your credit report and requires credit reporting agencies to correct errors in a timely fashion.
The Equal Credit Opportunity Act (ECOA)
The ECOA prohibits discrimination by credit card issuers and other lenders based on race, color, religion, national origin, sex, marital status, age, or an applicant’s receipt of public assistance. The ECOA ensures that all consumers have the opportunity to obtain credit, provided they meet the lender’s basic standards of creditworthiness. Under the ECOA, notice is given if a credit card application is rejected, including the reasons for denying credit. This brings transparency to consumers regarding their credit standing and what might be needed to improve their creditworthiness.
Credit card laws are designed to protect consumers from unfair, deceptive, or abusive acts or practices, ensuring fairness and equal access to credit. Knowledge of these laws empowers credit card holders to make informed choices and defend against unfair practices. Whether disputing a billing mistake, understanding the terms of a credit card agreement, or protecting oneself against discrimination, knowledge of legal protections empowers consumers to confidently navigate the world of credit.