Credit Card Act Passes Senate

by Kevin on May 20, 2009

The appropriately named redit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 has passed the United States Senate in overwhelming fashion: 90 to 5. It is apparent that credit card reform is just around the corner as the bill is being sent back to the House of Representatives for their vote. (The House passed a similar bill earlier this year with another overwhelming vote.)

Changes to the Credit Card Industry

Here’s a list of what you can expect to see change with your credit card company:

  • No credit cards under age 21
    • There are two variations of this floating around; one for each house of Congress bill. The House wants to avoid credit cards for those aged 18 and under a parent is the account holder (and the “underage” individual is just a card user). The House also wants to limit college students to one credit card and make the credit limit be set as a percentage of the student’s income. The Senate bill takes this one step further and says no one under age 21 can have a card unless a parent co-signs OR the student can provide proof of income.
  • Banning Universal Default
    • Universal default is the funny little practice where if you are late on Company A’s card and Company B finds out about it, then Company B can raise your rates. It’s insane and I’m glad they are banishing this practice.
  • Payments go to higher interest rate charges
    • Another positive change — let’s say you’ve transferred a balance to a new card with a fixed rate of 4.99% for the life of the balance transfer. The purchase interest rate is still set at 19.99%. In the past when you sent in a payment the money would be applied to the lower interest rate — while still charging you the high rate on your purchases. The legislation would fix this so that your payment goes towards the highest interest rate first.
  • No more retroactive rate jumps
    • If your rate changes for a legitimate reason — such as you were late on a payment — that change is only applied to purchases going forward. Going back to the balance transfer rate of 4.99%. That’s fixed. If you were late on that payment and the credit card company jacked your rate up to 24% then the new rate would only apply to purchases you make in the future. Your balance transfer amount would stay at 4.99% rather than jumping up as well, which is what was happening in the past.
  • If your rate jumps, it comes back down
    • This goes with the above point — if your rate does go up because you missed a payment, then if you are on time for 6 months in a row, the rate must come back down.

There are some other changes in the bill that I won’t go into a lot of detail about: statements must be sent out 21 days before payment is due, promotional interest rates must apply for at least 6 months, credit card issuers must give 30 days notice that they are closing your account, and those gift cards they like us to use can’t expire before five years and must have “dormancy fee” information printed on the card.

Is the CARD Act of 2009 a Good Thing?

Overall I would say yes, of course. Allowing payments to go to higher interest charges first makes sense to me (although I would have made it where the payment goes toward each rate as a percentage of your total card balance).

Then again it always makes me nervous when government gets involved with business affairs. Yes, the credit card industry has cost millions of Americans billions of dollars. The changes to the age limits makes me uncomfortable. I know that college students have been ignorant on credit card use, but what about the ones who are responsible? And why should the Bank of Mom and Dad have to foot the bill if the student is irresponsible? And what happened to building up a credit history as soon as possible?

I’ve always said, and I’ll say it again: no one forced you to use a credit card. You should have read the terms (and understood the costs) of using the card before you bought that big screen TV.

We’ll have to wait and see how long it takes the House of Representatives to pass a final bill. For now, this is what we’re sitting with.

What do you think of the upcoming changes?

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18-Year-Olds and Credit Cards: Discussion Continues
May 22, 2009 at 5:22 am


Katie Wettstein May 20, 2009 at 1:09 pm

People under 21 can have a card without parental cosigning if they have proof of income, right? I think there’s no problem with that one. If parents choose to cosign,I think they realize the risk they’re taking on with it. I agree with you on being nervous about the government being involved, but I think that credit card companies have been out of control for a while, so overall I’m feeling optimistic about things.

[email protected] May 20, 2009 at 1:51 pm

“…why should the Bank of Mom and Dad have to foot the bill if the student is irresponsible?”

-Who says they do? Is little Jimmy going to hold a gun to mom & dad’s head to get them to cosign for a credit card? If parents have kids who aren’t responsible at that age, they’d know that better than the banks would. So they shouldn’t facilitate them getting a card. If they decide to get their irresponsible child a credit card anyway, and co-sign for the debt, then I guess they *should* foot the bill.

I don’t think going through college without credit is going to kill anyone. Most people over a certain age did exactly that. Maybe if that became the norm again, our overconsumption would decline and we’d see people behaving more responsibly with their finances in general. That could only be good for our economy *in the long run*. Overconsumption and easy credit have obviously done us no favors.

April C. Harris May 20, 2009 at 3:48 pm

I’m for the Credit Card Act of 2009. I do agree people under 21 shouldn’t have a credit card without parent supervision. Making the parent as cosigner will benefit the most I think, only because there will be some control from parent with what person under 21 charges. Since parent will be responsible for actions/debts of their under 21 children, this will push people to go back to regular thinking which will be work to save liquid (money) to get what you want, and only charge big ticket items your yearly salary can’t buy. It’s ok to be in smart debt (college/home/etc.), but stupid debt (expensive clothes/expensive cars/etc) you can’t really afford isn’t wise anyway if under 21 or older adults who aren’t stable and have no assets either. See my “Asset Equation” article at

Erica May 20, 2009 at 3:53 pm

I am thinking they will have a tough time passing the 21 age limit and one card per student thing in addition to the percentage of income. College kids work part time retail most of the time which means income changes. Who decides if the percentage comes out of the check where they worked the most hours or from the time after Christmas or something when everyone gets almost no hours. Proof of income is also very easy to fudge the numbers in situations like that. Age-wise they need to start making student loans/grants cover things like books, laptops, etc because I’ve worked in a bank and THAT was the primary use of credit cards for college kids. I think just means the credit card companies and people who want cards will just have to use a less than legal method of getting card in hand. I think they should open more programs for credit card education to high schoolers and college freshman before doing a blanket age ban like this.
The rest of it is simply wonderful though. I just hope that counts for all current debt when they apply it and the banks dont pull something and not apply the rules towards current cards.

Roger May 20, 2009 at 7:17 pm

Overall, I approve of this bill. While there’s no promise that government involvement will improve the credit card industry, I think this is a step in the right direction. While it’s easy to say that people should read through their credit agreements, there’s not much point if the company can change the rules at will.

As for the rules regarding under 21 credit users, I think the new rules are appropriate. If cards are issued to students with no (or insufficient) ability to repay them, the assumption on the part of the credit card company is likely that the Bank of Mom and Dad will come to bail them out should they default. The cosigner requirement just means that the parents will be informed and know about the credit that their children have outstanding now.

Stephanie PTY May 21, 2009 at 8:20 am

For the under 21 rule, I don’t like it. (I’ve said as much on my own site.) It’s not that I think it’s even a really bad rule – if an individual credit card company thinks this is a good way to handle young adults, so be it. But I don’t like the idea of the government handing down more legislation that says that young adults are, financially, not adults yet. Keeping people from making mistakes with credit between the ages of 18 and 21 doesn’t keep them from making the same mistakes after 21.

As I said in my comment over at Man vs. Debt on the subject: When I got into credit card debt, it wasn’t because I was 20 (and not 21!), it was because of my situation – I was going to a school that was too expensive for me, and I was going into credit card debt to pay for my school projects and groceries. The fix for that would not have been to prevent me from getting a card, or to bring my mother into it (she knew full well that I had a credit card, and knew that I got it to build a credit history), but education in high school that would have prepared me to know whether a particular college was too expensive for me.

Kevin May 27, 2009 at 8:33 pm

@Katie: I see what you are saying, but who says the credit card companies are going to accept the (sometimes) meager earnings of a college student? Imagine a waiter showing his vastly variable income, and the credit card company uses that as leverage to put him into the 22% bracket. Not sure if that’s how it will play out, but putting an age limit seems ridiculous considering an 18 year old can die for his country, but would need “permission” to get a credit card.

@Kate: True no one is going to force parents to do it, but how many parents have intervened thus far? Probably not many. Hey Mom, just sign this from. I think going through college with responsible credit card use can be equally beneficial.

@April: Since when were parents responsible? Where did these kids learn these habits?

@Erica: Looks like it already passed.

@Roger: I am pretty much against government intervention in most parts of our lives. So I agree to disagree. 🙂

@Stephanie: Education is key… but heck, the government can’t run the government correctly (see the $10 trillion debt)… so I don’t think we can count on them to educate us on finances, either!

Steph June 16, 2009 at 12:54 pm

As a student whose parents are not quite financially responsible, this bill strikes me as a poor choice of aid for college students. I just recently applied for my first credit card in order to begin building up credit for when I leave college. If I am required to have a parent co-sign, there is a good chance I will not get the card – as I said, my parents are not financially responsible and do not have good credit scores. This is a large part of the reason I want to slowly build my own to a good level during college.

As it stands, this bill seems to be telling me that I am old enough for student loan debt – which will total $40,000 or more for me, personally – but not for a $1,000 limit credit card. If I have to wait to get a credit card until I am 21, I will be graduating within 8 months of receiving my card. I think, if 18 is going to be the legal “adult” age, it should be treated as such.

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