Credit Card Consumer Rights & Protections Explained

Contents

Consumers who use credit cards have a number of important rights and protections afforded to them by federal laws. Most of these come from the 1968 Truth In Lending Act (TILA) and its amendments, such as the Credit Card Accountability Responsibility And Disclosure Act of 2009 (Credit CARD Act of 2009). All credit card users should familiarize themselves with their basic rights. This way, they minimize their chances of being taken advantage of.

TILA and The CARD act are both dense pieces of legislation that are hundreds of pages long. We read through every single one and found the clauses that offer the most important consumer protections.

Credit Card Consumer Rights

Credit card legislation deals with everything from the application process down to your rights during debt collection. We categorized some of the most important rights into four broad categories, and listed them in the table below. Many of these items are straightforward and easy to understand. In the following sections, we go over some of your rights that have a bit of nuance to them.

Category
DisclosuresOutstanding DebtInterest RatesFees & Other
  • Issuers are required to provide you with easy to understand credit card terms before you apply
  • Your due date on bills must be the same day every month
  • Finance charge increases require 45-day notice
  • Consumers cannot be charged over limit fees unless they opt-in
  • Credit card agreements must be accessible to consumers online
  • Payments must be allocated in order of descending APR
  • Any increases must also be re-considered every 6 months
  • You cannot be liable for more than $50 per card for fraudulent charges
  • All of fees and finance charges need to be displayed on the cardmember agreement
  • Every bill needs to show you how much interest you'd pay with continued minimum payments and how long it would take to pay off the debt
  • Rates cannot be increased within the first 12 months of card membership
  • First year fees cannot be greater than 25% of your credit limit
  • Credit card fee disclosures must be presented in plain and easy-to-understand language
  • Debt collectors cannot call you multiple times per day, make false threats, or discuss your debt with anyone other than your spouse
  • Special introductory rates cannot be shorter than 6 months
  • If you report an error on your credit report, the credit bureaus must investigate your claim

If you believe your credit card issuer denied you one of the above rights, you should immediately file a complaint with the Consumer Financial Bureau (CFPB).

Protection Against Fraud & Other Billing Disputes

You cannot be held liable for more than $50 of fraudulent charges made to your credit card. This protects you in the event your card is lost, stolen, or counterfeited. News of credit card skimmers at gas stations and other public locations hit every day -- knowing about this protection is paramount, now more than ever.

To exercise this right, you should report any suspicious charges on your bill to the issuer. You may be required to swear under oath that you were not the one to make the purchase. This is a rare occurrence, however.

Fraud protection is afforded to consumers through the Fair Credit Billing Act -- an amendment to TILA. The same act also extends protections to other types of charges you object to. For example, if you order an item online using a credit card, and it arrives defective, you may take the charge off your statement. You are required to try and resolve the issue with the merchant first. If they are unavailable or refuse to acknowledge their mistake, you can remove the charge from your bill.

Protection From Errors On Your Credit Report

If you spot an error on your credit report, you may report it to either the credit reporting agencies or the data collection agency responsible for the mistake. Through the Fair Credit Reporting Act, the companies are required to investigate your claim to the best of their abilities. Below are the addresses of each major credit bureau where you can report errors.

TransUnionEquifaxExperian
TransUnion LLC Consumer Dispute Center
P.O. Box 2000
Chester, PA 19016
Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374
Experian
P.O. Box 4500
Allen, TX 75013

If they find an error on your report, it must be immediately taken off your credit history. The credit reporting agency must also contact anyone who pulled your credit report within the last six months, notifying them of the error.

The act also allows all consumers to receive one free copy of their credit report per year. This ensures you can monitor your reports for errors or signs of identity fraud. To claim your report, visit AnnualCreditReport.com.

Repaying Outstanding Debt

Several provisions of the Credit CARD Act of 2009 are aimed at making it easier to repay your outstanding credit card debt.

  • Your bill must be due on the same day each month. For example, if you got your first due date May 2nd, all subsequent bills will be due on the second of each month.
  • Banks are required to send you the credit card bill no later than 21 days before the due date.
  • If your due date falls on a holiday, weekend, or any day when the issuer doesn't process payments, the bill cannot be considered late as long as it's received the next business day.
  • Every statement must disclose two things:
    • How many months it would take for you to pay off the debt, assuming you make just the minimum payments. The bill also needs to show how much interest you would have to pay in such a scenario.
    • The bill must also show what monthly payments you need to make for the balance to be paid off within 36 months. Like with the minimum payment plan, you must also be shown how much interest you would pay at the end of that 36-month period.

Payment Allocation

Payments in excess of the minimum must be applied in descending order of APR. The only exception to this rule happens for credit cards with promotional interest rate offers. In these scenarios, the bank must apply the full payment to the promotional balance during the last two months of the offer.

Before the CARD Act was passed, some financial institutions applied their customers’ payments to the portion of their balance with the lowest APR. This was not in the best interest of the consumer. Paying low-interest balances first would maximize the finance charges paid, and drag out how long it would take to completely repay the bill.

Protection From Excessive Fees

During the first year of cardmembership, an issuer cannot charge their customers fees that exceed 25% of their available credit limit. This provision exists to cut down on so-called “fee harvesting” credit cards.

Prior to 2009, some subprime borrowers would be targeted with credit card offers that were riddled with fees. Fee harvesting cards would charge for things like monthly upkeep, activation, fraud protection, and more. Because these cards were going after consumers with low FICO scores and low credit limits, the fees would often eat up a large chunk of the credit limit. Before a person would receive their card in the mail, they would already have their balance close to maxed out. Though this practice has mostly died out, news stories about similar credit cards still appear from time to time.

Banks also cannot charge you a fee for going over your credit limit, unless you specifically opted into a program that allows for this. Most banks will typically just decline a purchase you attempt to make, if it would put you over your preset spending limit for that month.

Credit Card Surcharges

Some states prohibit merchants from imposing a fees on consumers who pay with credit cards instead of cash or debit. Currently ten states ban credit card surcharges -- California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. In states that do allow the practice, not all merchants adhere to it.

A map showing which states ban or allow credit card surcharges.

It’s important to note that the bans on credit card surcharges are currently being challenged in several of the above states. Merchant advocacy groups argue these surcharges allow vendors to offset the cost of accepting credit card payments, imposed to them by networks like VISA and Mastercard. 

Laws Prohibiting Raising Credit Card Interest Rates

Issuers are not allowed to raise your interest rates during the first 12 months after you open up a credit card –- the only exception being if you have a promotional APR period. This prevents banks from using bait and switch tactics, where they initially offer you a lower interest rate only to raise it within a few months of you receiving it. Additionally, if there is some sort of promotional APR offer, it is, by law, required to last at least six months.

After your first year, issuers can raise your APR for a number of reasons -- anything from your credit score falling, to missing payments, or even due to a turn in market conditions. However, the card issuer must give you a 45-day notice before applying a new interest rate. The new APR may only apply to the purchases going forward. The only way it could be applied retroactively is if you are 60 days or more overdue on your bills.

Lastly, if your bank does choose to raise your interest rates, it must re-evaluate the decision no less than every six months. If you were bumped up to a penalty APR, all that’s required is that you made at least the minimum payment over the last half-year period. If you did, then the bank must put you back on your regular interest rate.

Who’s Not Protected By Credit Card Federal Laws?

Small business and corporate credit cards are not given the same rights we outlined above. TILA and the Credit CARD Act of 2009 protect credit card accounts under an open end consumer credit plan –- this applies only to personal credit cards and charge cards.

Some of the nation’s largest credit card issuers advertise benefits similar to what’s given to consumers by law. For example, it’s not uncommon for a business credit card to have ‘zero fraud liability’. However, there is no law compelling them to offer these as benefits. Therefore, if shopping for a small business credit card, individuals should take extra time when examining the cardmember agreement.

Rights You Give Up By Signing Up For Credit Cards

Over half of credit card users in the United States have given up the right to sue their credit card issuer. Mandatory arbitration clauses exist in 15.8% of credit card contracts. While this number is small, a disproportionately large number of consumers belong to them, since they are part of the nation’s biggest banks. According to a study by the CFPB, 53% of cardholders are affected by these clauses.

Instead of taking the credit card company to court, most consumers have to try and resolve the issue through a third-party arbitrator. These clauses also prevent individuals from joining class action lawsuits against the issuer.

Currently, the CFPB is reviewing the practice of mandatory arbitration clauses, and whether they are harmful to consumers. Recently, the Bureau proposed a rule that would do away with the class action restrictions. As of the writing of this article, however, no action has been taken.

What Can Consumers Do If An Issuer Breaks One Of These Laws?

The CFPB is the best agency to contact if you suspect your issuer has violated some of the rules we discussed above. There is an online complaint system that’s straightforward and easy to use.

Some individuals erroneously contact the Better Business Bureau (BBB) in an attempt to straighten out problems. However, unlike the BBB, the CFPB has been granted power to investigate these matters by the federal government. They have processes set in place to follow-up and investigate suspect practices by issuers.

Even if an issue may not affect you, contacting the CFPB may be a good idea. Due to limited resources, the Bureau cannot investigate every small institution and contract. Your tip may set off an investigation that will result in justice for thousands of other consumers.

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