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Credit Card Accountability Responsibility and Disclosure (CARD) Act: Explanation of Compliance

In this article, we'll go over how the CARD Act effects lenders.

Table of Contents


The CARD Act is an amendment to the Truth in Lending Act (TILA) that is meant to add additional protections for consumers regarding open end lines of credit. The Act limits certain actions that creditors can take, and requires a number of disclosures to ensure that information is shared with consumers. In this article, we will be covering:

  1. Consumer protections
  2. Notices and disclosures
  3. Marketing limitations and requirements
  4. Reporting

Consumer Protections

In general, the Act places limits on the amount and number of penalty fees and charges that can be charged on a credit card account; they must be reasonable and proportional to the omission to or violation of the cardholder agreement. Creditors can’t open or increase the limit of any credit card account unless they have considered the consumer’s ability to make the required payments. If there is a delay in the crediting of a payment due to a material change in the mailing address, office, or procedures of the creditor within a 60 day period from the date of the change, no late fee or finance charge can be imposed for the late payment.

If a consumer with an open end credit plan dies, the creditor needs to make sure that the administrator of their estate can resolve outstanding credit balances in a timely manner.


Changing the Terms of Repayment

[CARD Act p. 3-4, Sec. 171]

A creditor cannot change the terms for repaying an outstanding balance or increase any APR, fee, or finance charge to a credit card account outside of certain exceptions.

What are the exceptions to this rule?

The APR can be increased at the expiration of a specified period of time as long as all of the following requirements are met:

  • The creditor disclosed to the consumer the length of the period and what the APR would be after the end of the period
  • The increased APR doesn’t go over the amount previously disclosed to the consumer
  • The increased APR isn’t applied to transactions that happened before the expiration of the period

An increase in APR is allowed if it is due to the completion of a workout or temporary hardship arrangement or the failure of a consumer to meet the terms of a workout or temporary hardship arrangement as long as both of the following requirements are met:

  • The APR, fee, or finance charge applied following the increase is not more than the rate, fee, or finance charge that applied prior to commencement of the agreement
  • The creditor provided a clear disclosure of the terms to the consumer prior to the the commencement of the arrangement

A creditor can increase the APR if the consumer does not meet the minimum payment within 60 days of its due date as long as the creditor:

  • Includes a notice of the increase with a statement of the reason for the increase and that the increase will end no later than 6 months after its imposition if the creditor receives the minimum payments on time during that period
  • Ends the increase no later than six months after if the minimum payments are received on time during the period

A variable APR can be increased if it is in accordance with a credit card agreement that takes into account changes in the rate according to an index that is not under the creditor's control and is available to the public.


Creditors are required to give the consumer advance notice of any increases in APR or any other significant changes to their account at least 45 days before the change takes effect. See Advance Notice of Significant Changes under the Notices and Disclosure section of this article for more information.

Additionally, if they do change the terms of repayment the change in payment terms must be no less beneficial than the original, or one of the following methods:

  1. An amortization period no less than 5 years long beginning on the date of the increase or change
  2. A minimum periodic payment including a percentage of the outstanding balance equal to no more than twice the percentage required before the increase or change.

Changes Based on Credit Risk or Market Conditions

[CARD Act p. 4, Sec. 148]

If a creditor increased the APR of a credit card account based on factors such as the credit risk of the consumer or market conditions, the creditor must consider changes in such factors in determining whether to reduce the APR in the future.

What should the creditor take into account regarding these factors?

  • A creditor must maintain reasonable methods to assess such factors
  • At least every 6 months, the creditor must review the accounts with APR that increased to assess whether such factors have changed.
  • Reduce the APR that was previously increased when the review indicates there should be a reduction.
  • If there is an increase in APR, provide the required written notice

This does not make a requirement for a reduction in any specific amount.


First Year Protection

[CARD Act p. 5, Sec. 172]

Except in the case of the previously described APR increases, no increase in APR, fees, or finance charges can be applied or effective on a credit card account in the first year after the date the account is opened. If a credit card account has a promotional APR, the rate cannot be increased until the end of a 6 month period after the promotional rate has taken effect.

Double Cycle Billing

[CARD Act p. 5, Sec. 102]

Creditors are prohibited from practicing double-cycle billing or placing penalties for on-time payments.

What is double-cycle billing?

Double cycle billing occurs when a creditor takes the average balance of the previous two billing cycles and applies interest based on that balance to the current billing cycle.


If a creditor provides the consumer with a time period in which they can repay any portion of the extended credit without incurring a finance charge, the creditor cannot impose any kind of fee or interest on 1) any balances for days in billing cycles preceding the most recent cycle or 2) any part of a balance in the current billing cycle that was repaid within the same cycle.

This does not apply to any adjustment to a finance charge that is a result of resolving a dispute or returning a payment for insufficient funds.


Over-The-Limit Transactions

[CARD Act p. 6, Sec. 102 (k)]

A creditor cannot charge a fee for over-the-limit transactions unless the consumer has chosen to permit the creditor to complete transactions that go over the credit limit. While this doesn't prohibit a creditor from completing an over-the-limit transaction, the creditor in question can't charge a fee for the transaction unless the consumer has elected to allow over-the-limit transactions.

What are the requirements for over-the-limit transactions and fees?

  • Creditors are prohibited from manipulating the credit limits in order to increase over-the-limit or other penalty fees.
  • Only one over-the-limit fee can be charged per billing cycle if the credit limit is exceeded, and, in respect to the excess credit, only once each in the next two billing cycles unless the consumer obtains an additional extension of credit or reduces the balance below the credit limit by the end of the billing cycle.
  • A creditor can’t impose additional fees to allow a consumer to repay an extension of credit or finance charge, regardless of the payment method, unless the payment involves an expedited service by the creditor’s service representative.

Allocation of Excess Payments

[CARD Act p. 8, Sec. 164 (b); § 1026.53(a)]

When the card issuer receives a payment from a cardholder that is higher than the minimum payment amount, the excess of the payment should be applied to the card balance (interest bucket) bearing the highest rate of interest first, then to the next highest interest rate, and so forth until the payment is exhausted.

However, if the consumer has a balance (bucket) with an deferred interest arrangement that the consumer is not obligated to pay interest on if the balance is paid in full before the period expires, then any excess on a payment must be attributed to that balance (bucket) first if it is in the two billing cycles preceding the expiration of the period. Only once the balance (bucket) with deferred interest has been paid off should any remaining excess on the payment be distributed in the manner previously described.

Fees Pertaining to Subprime or 'Fee Harvester' Cards

[CARD Act p. 8-9, Sec. 105, § 1026.52]

For credit card accounts with terms that require any fees to paid (other than late fees, over-the-limit fees, or fees for a payment returned for insufficient funds) in the first year, no fees can be charged that equal more than 25% altogether of the total amount of credit for the account (except late fees, over-the-limit fees, or fees for a payment returned for insufficient funds).

Civil Liability

[CARD Act p. 12, Sec. 201 (b); Title 15 Chapter 41]

In the case of individual or class action for damages regarding an open end credit plan that is not secured by real property, damages awarded must be equal to twice the amount of any finance charges in connection with the transaction ($500 minimum, $5000 maximum) or an appropriate higher amount if there is an established pattern of similar failures.

Required Notices and Disclosures

The CARD Acts includes additional requirements for notices and disclosures that must be made, including:

  • Information and disclosures required for periodic statements
  • Notice of significant changes, such as increased APR or fees
  • Notice which allows consumers to elect whether or not they wish to allow over-the-limit transactions and fees to be processed


[CARD Act p. 9, Sec. 106 and 163]

Card issuers must deliver a periodic statement with the required information at least 21 days before the payment is due; if they fail to do so, they cannot treat a payment as late. The payment due date must be on the same date every month.

  • If the due date of a payment falls on a weekend or holiday when the creditor does not receive or accept payment by mail, a payment received on the next business day cannot be treated as late for any purpose.
  • If you give a consumer a grace period in which they can repay any portion of the extended credit without incurring additional finance charges, you can't impose said finance charges for any portion of the credit extended in that billing cycle unless you send a statement including the amount of the finance charge for the period at least 21 days before the end of the grace period.

There are a number of disclosures that are required to be included in the periodic statement. The following sections on minimum payment warnings and late payment deadline disclosures will go over the ones specifically addressed in the CARD Act.

Minimum Payment Warning

[CARD Act p. 10-11, Sec. 201]

Card issuers must issue a written statement of the Minimum Payment Warning, which should say “Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance” or similar.

What else needs to be included in the disclosure?

The disclosure must also include repayment information that applies to the outstanding balance of the consumer, including:

  1. The number of months it would take to pay off the balance if only the required minimum monthly payments are made
  2. The total cost, including interest and principal payments, to consumer if only minimum required monthly payments are made
  3. The monthly payment amount and total cost to the consumer that would be required to payoff the outstanding balance in 36 months
  4. A toll-free number the consumer can call for information about accessing credit counseling and debt management services  (this number should be for a nonprofit budget and credit counseling agency approved by a United States bankruptcy trustee)

These items of information should be listed in the given order.


What other considerations do creditors have to keep in mind for these disclosures?

When making such disclosures, the creditor has to apply the interest rate or rates that are in effect on the date the disclosure is made until the balance is paid in full. If the interest rate is a temporary rate that will change in keeping with the contract, the new interest rate will go into effect on the date provided in the contract as long as the new interest rate is based on an index or formula in effect on the date of the disclosure.

These disclosures must appear in a conspicuous and prominent place on the billing statement in the form of a table that contains clear headings for each item of information and clearly states each required item of information.


Late Payment Deadline Disclosure

[CARD Act p. 12, Sec. 202]

In the periodic statement, creditors must disclose the date a payment is due and the deadline after which a late payment will have a late fee, charge, or other penalty imposed. If one or more late payments on a credit card account may cause the APR to increase, this must also be included in the disclosure.

If a creditor has multiple locations at which a consumer can make a payment on their account in person, the date the consumer made the payment at that location is considered the date the payment was made when determining whether the payment can be considered late.

Advance Notice of Significant Changes

[CARD Act p. 2, Sec. 101]

Credit card issuers must give their card holders written advance notice of any increase in APR or any other “significant changes” to their account at least 45 days prior to the change taking effect. This notice can be included in the periodic statement or as a separate notice at the creditor's discretion.

What are the requirements for the notice?

Any such notice must be clear and conspicuous, and must contain a statement that the consumer has a right to  cancel the account prior to the effective date of the change.

If the consumer does cancel the account, it doesn't result in a default under the cardholder agreement. It also doesn't obligate the consumer to  immediately fully repay their obligation, repay their obligation by a less beneficial method, or have penalties or fees imposed.


Over-the-Limit Transaction Notice

[CARD Act p. 6, Sec. 102 (k)]

A creditor can’t put a consumer’s choice to allow over-the-limit transactions into effect unless they have given the consumer a notice of the over-the-limit fee. (The consumer’s election can be made orally, electronically, or in writing.) If the consumer does elect to allow over-the-limit transactions, the creditor must also give the consumer a notice of their right to revoke the election with any periodic statement in which an over-the-limit fee has been imposed.

Internet Disclosures

[CARD Act p. 13, Sec. 204]

Every credit card issuer has to establish and maintain a website on which they post the written agreement between the creditor and the consumer for each credit card account. Additionally, each credit card agreement must be provided to the Federal Reserve Board in electronic format. The Board will, in turn, establish and maintain a website that will serve as a central repository of credit card agreements that will be accessible by the public.

Creditors do not need to provide the Board with individually negotiated changes to a contract.


Prevention of Deceptive Marketing of Credit Reports

[CARD Act p. 14, Sec. 205]

Any advertisement for a free credit report must prominently disclose that free credit reports are available at ‘’ under Federal law (or any other source authorized by Federal law)

If the advertisement is by TV or radio, this disclosure needs to be included in the audio and (for TV) the visual part of the advertisement. The disclosure needs to say, “This is not the free credit report provided for by Federal law.”


Protections for Underage Consumers

[CARD Act p. 14-15, Sec. 301-303]

Credit cards and other open ended credit plans cannot be opened for consumers who apply that are under the age of 21 unless the underage consumer has a cosigner or submits financial information that indicates they have an independent means of repaying any ensuing obligation. If an underaged consumer has an account that is cosigned by a parent, legal guardian, or spouse, the creditor cannot increase the amount of credit available on the account without the cosigner’s approval in writing.

Who can qualify as a cosigner?

Any individual who is at least 21 years old and has a means to repay any debts incurred.


Advertising to College Students

[CARD Act p. 16, Sec. 304]

A card issuer or creditor cannot offer tangible items as incentive for a student at an institute of higher education to apply for or participate in an open end credit plan on or near the campus of an institution of higher education or at an event sponsored by or related to said institution.

Required Reports

[CARD Act p. 17, Sec. 305]

Every creditor has to annually submit a report to the Board that contains the terms and conditions of all business, marketing, and promotional agreements and college affinity card agreements with an institution of higher education (this also includes any agreements with alumni organizations or foundations affiliated with the institution) with respect to any credit cards issued to college students.

What does the report need to include?

  • Any memos of understanding between the creditor and the institution that relates to any aspect of the agreement.
  • The amount of any payments from the creditor to the institution during the period covered by the report and the terms of agreement in which the amounts are determined.
  • The number of credit card accounts opened during the period and the number of accounts that were outstanding at the end of the period.
  • Reports should be organized by institution.


Written by Kayla Todd

Updated on January 5th, 2024

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