The CARD Act protects you from sudden rate hikes, hidden fees, and confusing billing practices that credit card companies used before 2010
The Credit Card Accountability Responsibility and Disclosure Act — called the CARD Act — became law in May 2009 and took full effect in February 2010. It is a federal rule that changed how credit card companies can charge you, when they can raise your rate, and what they must tell you before you sign up or after you open an account.
Before the CARD Act, credit card companies could raise your interest rate whenever they wanted, even if you paid on time. They could charge fees you never saw coming. They could explore your payment to the lowest-interest balance first, keeping you in debt longer. The CARD Act stopped most of these practices. It does not make credit cards free or risk-free — you still owe what you charge — but it does mean the rules are now written to protect you rather than trap you.
Key Takeaways
- Credit card companies cannot raise your interest rate on existing balances unless you are more than 60 days late, and they must give you 45 days' notice before raising it on new charges.
- Your payment must go to the highest-interest balance first, not the lowest, so you pay less interest overall.
- Credit card companies must send your bill at least 21 days before the due date, and they cannot charge a late fee unless you are at least 21 days late.
- You must receive a clear disclosure form before you open an account, showing the interest rate, annual fee, and other costs in a standard format so you can compare cards.
- Credit card companies cannot charge fees that are unreasonably high — for example, a late fee cannot be more than the minimum payment or $25, whichever is lower, unless you have a history of late payments.
When your interest rate can go up
The CARD Act divides rate increases into two categories: increases on balances you already owe, and increases on new charges going forward.
A credit card company can raise your rate on an existing balance only if you are more than 60 days late on a payment. If they do, they must send you written notice at least 45 days before the new rate takes effect. That notice must tell you the new rate, when it starts, and that you have the right to reject it and close the account — though you will still owe the old balance at the old rate. This is called a rate rejection right.
For new charges (anything you charge after the rate increase takes effect), the company can raise your rate more easily. They still need to give you 45 days' notice, but they do not need you to be late. However, if you reject the increase, you can close the account and pay off the old balance at the old rate. Many people use this option to stop using a card without penalty.
There is one exception: if you have a promotional rate (like 0% for 12 months), the company can end the promotion and raise your rate when the promotion period ends, as long as they told you about the end date when you opened the account.
How your payment is applied to your balance
Before the CARD Act, credit card companies could explore your payment to the lowest-interest balance first. If you had a 0% promotional balance and a regular 18% balance, your payment would go to the 0% part, leaving the 18% balance to grow. This kept you in debt longer and cost you more in interest.
The CARD Act requires credit card companies to explore your payment to the highest-interest balance first. If you have a 0% promotional balance and an 18% balance, your payment now goes to the 18% balance. This means you pay off high-interest debt faster and pay less interest overall. Any payment above the minimum must follow this rule.
The only exception is if you have set up a specific payment plan with your card company — for example, a hardship plan where you agreed to pay a certain amount toward a specific balance. In that case, the company can follow your agreement instead of the highest-interest rule.
Fees the CARD Act limits or bans
The CARD Act does not ban all fees, but it puts a cap on the ones that hurt most.
Late fees cannot be more than $25 unless you have been late more than once in the past six months, in which case they can be up to $35. The fee also cannot be more than the minimum payment due. So if your minimum payment is $15, your late fee cannot be more than $15, even if the card company's rules say $25.
Over-limit fees — charges for going over your credit limit — are banned entirely unless you have asked the card company to allow you to go over your limit. Most card companies have stopped offering over-limit protection, so this is rarely an issue now.
Annual fees are still legal, but the card company must tell you about them before you open the account. Some cards charge $95 or more per year; others charge nothing. The disclosure form (explained below) must list the annual fee clearly.
Inactivity fees — charges for not using your card — are banned. A credit card company cannot charge you for leaving the account open and unused.
The disclosure form you must see before you sign up
Before you open a credit card account, the card company must give you a form called the Schumer Box (named after the senator who pushed for it). This is a standardized table that shows the key costs and terms in the same format on every card, so you can compare them side by side.
The Schumer Box must include the purchase interest rate (APR), the annual fee, the grace period for new purchases (the number of days you have to pay before interest starts), the penalty APR (the higher rate you pay if you are late), and fees for cash advances, balance transfers, and late payments. It must also show how interest is calculated and give examples of how much interest you would pay on a sample balance.
This form is usually on the card company's website or in the process materials. You can request it by phone or mail if you do not see it online. The point is to make it straightforward to compare a $0-fee card with a 15% APR to a $95-fee card with a 12% APR, so you can decide which one actually costs less for your situation.
Billing and payment important date
The CARD Act sets strict rules about when your bill must arrive and when payment is due.
Your credit card company must send your bill at least 21 days before the due date. This gives you time to receive it, review it, and pay it without rushing. If you pay by mail, the payment is on time if it is postmarked by the due date. If you pay online, it is on time if the company receives it by 11:59 p.m. Eastern time on the due date.
A late fee can only be charged if your payment is at least 21 days late. So if your due date is the 15th, you cannot be charged a late fee until after the 6th of the next month. This gives you a small buffer if your payment is delayed in the mail or if you forget.
If your due date falls on a weekend or holiday, the company must move it to the next business day. You cannot be penalized for paying on the business day instead of the calendar date.
Protections for young cardholders and students
The CARD Act has special rules for people under 21. If you are under 21 and want to open a credit card, you must either have a cosigner (usually a parent) or show proof of income. This rule was added because young people without income were being targeted with cards they could not afford to pay back.
If you are a student, your card company cannot offer you a gift or reward (like a free t-shirt or pizza) for opening an account on or near a college campus. They also cannot set up a table at your school to sign people up. These rules were meant to stop aggressive marketing to students who might not understand credit yet.
What the CARD Act does not cover
The CARD Act protects you from many unfair practices, but it does not cover everything. It does not set a maximum interest rate — a credit card company can still charge 25% or 30% APR if your credit score is low. It does not ban penalty fees entirely, only caps them. It does not require credit card companies to offer you a card or to keep your account open.
The CARD Act also does not cover store credit cards, gas station cards, or other cards issued by retailers rather than banks, though many retailers have adopted similar rules on their own. It does not cover prepaid cards or gift cards. And it does not change how credit card companies report your payment history to the credit bureaus — that is governed by other laws.
If you believe a credit card company has broken the CARD Act, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) online at consumerfinance.gov or by mail. The CFPB investigates complaints and can take action against companies that break the law.
Frequently Asked Questions
Can a credit card company raise my rate if I pay on time?
Not on your existing balance. They can raise your rate on new charges with 45 days' notice, but you can reject the increase and close the account. On existing balances, they can only raise your rate if you are more than 60 days late.
What if I get a bill with a fee I do not recognize?
Call the card company and ask what the fee is for. If it is a late fee and you paid on time, or if it is an over-limit fee and you did not ask for over-limit protection, ask them to remove it. If they refuse, you can file a complaint with the CFPB.
Does the CARD Act protect me from high interest rates?
No. The CARD Act does not set a maximum interest rate. It only protects you from sudden rate increases on existing balances and requires the company to tell you the rate before you open the account. You can shop for lower rates by comparing cards using the Schumer Box.
If I close a credit card account, do I still owe the balance?
Yes. Closing an account does not erase the debt. You still owe what you charged, and the company can still charge interest on it. However, if you reject a rate increase, you can close the account and keep paying the old rate on the old balance.
Does the CARD Act explore to all credit cards?
It applies to most credit cards issued by banks and credit unions. It does not cover store credit cards, prepaid cards, or gift cards, though many retailers follow similar rules anyway. Check with your card company if you are unsure.