The clock started ticking on May 22, 2009 when the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act was signed by President Obama. It is a landmark piece of legislation that provides American consumers with stronger protection against unfair credit practices than previously imposed by the Federal Reserve under changes to Reg Z and Reg AA. It also gave issuers less time to comply than the Fed: the first date for compliance is this month, only 90 days after the law was passed. Tick. Tick. Tick.
On August 20, 2009 the first provisions of the CARD Act go into effect. By this date, card issuers must have made the changes necessary to ensure that:
- – Cardholders have a minimum of 21 days to pay their bill;
- – Cardholders receive 45 days’ advance notice of significant changes to their card agreements;
- – Notice is provided that cardholders have a right to opt out of significant changes in their account terms, including interest rate and fee increases, as long as they are not more than 60 days overdue on their payments.
These provisions will have significant benefits to cardholders and will require extensive systems and programming changes for card issuers, but they pale in comparison to what’s in store for 2010. By next year, the CARD Act will fundamentally change the way credit card issuers advertise, market, and bill credit cards. The majority of these changes will need to be in place in little more than 6 months, only 9 months from passage of the law. Tick. Tick. Tick.
Beginning in February 2010, the CARD Act entails changes that impact what card issuers can charge, who they can charge and how and when those terms are disclosed. The overarching theme is “Plain Language and Plain Sight” and affects the layout of every solicitation, application, notice, and periodic statement delivered to consumers. The Federal Reserve has been tasked with providing model disclosures, which are to be updated regularly, based on government-sponsored reviews of the market, empirical research and direct consumer testing.
In addition to disclosing terms, card issuers are required to provide information to consumers on the consequences of their financial decisions such as how long it would take to pay off the existing balance, and the total interest cost if the consumer paid only the minimum due each month. In addition, all terms and contracts must be made available online for easy comparison and monitoring.
What’s at stake for card issuers and banks? An estimated 15 billion in annual revenue from late fees alone, the cost of retrofitting existing contracts and communications while issuing new (more profitable) products and the cost of lobbying against additional reforms likely to be imposed on the lending industry.
What’s at stake for service providers? Potentially a one-time opportunity to help your customers gain efficiencies by introducing them to new marketing techniques such as transpromo and relevant personalization that can make all of their documents more efficient and effective.
Card issuers are challenged to analyze, redesign and reprogram each of their marketing and customer communications over the next 6 months. Are you ready to help? Tick. Tick. Tick.
(Stay tuned for the next post covering changes to individual communications mandated by the CARD Act of 2009)