Credit Card Accountability Responsibility and Disclosure Act of 2009/Title I

TITLE I — CONSUMER PROTECTION

Sec. 101. Protection of Credit Cardholders.

(a) Advance Notice of Rate Increase and Other Changes Required.—

(1) Amendment to TILA.—

Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is amended by adding at the end the following:

``(i) Advance notice of rate increase and other changes required.—

``(1) Advance notice of increase in interest rate required.—In the case of any credit card account under an open end consumer credit plan, a creditor shall provide a written notice of an increase in an annual percentage rate (except in the case of an increase described in paragraph (1), (2), or (3) of section 171(b)) not later than 45 days prior to the effective date of the increase.

``(2) Advance notice of other significant changes required.—In the case of any credit card account under an open end consumer credit plan, a creditor shall provide a written notice of any significant change, as determined by rule of the Board, in the terms (including an increase in any fee or finance charge, other than as provided in paragraph (1)) of the cardholder agreement between the creditor and the obligor, not later than 45 days prior to the effective date of the change.

``(3) Notice of right to cancel.—Each notice required by paragraph (1) or (2) shall be made in a clear and conspicuous manner, and shall contain a brief statement of the right of the obligor to cancel the account pursuant to rules established by the Board before the effective date of the subject rate increase or other change.

``(4) Rule of construction.—Closure or cancellation of an account by the obligor shall not constitute a default under an existing cardholder agreement, and shall not trigger an obligation to immediately repay the obligation in full or through a method that is less beneficial to the obligor than one of the methods described in section 171(c)(2), or the imposition of any other penalty or fee.´´.

(2) Effective Date.—

Notwithstanding section 3, section 127(i) of the Truth in Lending Act, as added by this subsection, shall become effective 90 days after the date of enactment of this Act.

(b) Retroactive Increase and Universal Default Prohibited.—

Chapter 4 of the Truth in Lending Act (15 U.S.C. 1666 et seq.) is amended—

(1) by redesignating section 171 as section 173; and

(2) by inserting after section 170 the following:

``SEC. 171. Limits on interest rate, fee, and finance charge increases applicable to outstanding balances.

``(a) In general.—In the case of any credit card account under an open end consumer credit plan, no creditor may increase any annual percentage rate, fee, or finance charge applicable to any outstanding balance, except as permitted under subsection (b).

``(b) Exceptions.—The prohibition under subsection (a) shall not apply to—

``(1) an increase in an annual percentage rate upon the expiration of a specified period of time, provided that—

``(A) prior to commencement of that period, the creditor disclosed to the consumer, in a clear and conspicuous manner, the length of the period and the annual percentage rate that would apply after expiration of the period;

``(B) the increased annual percentage rate does not exceed the rate disclosed pursuant to subparagraph (A); and

``(C) the increased annual percentage rate is not applied to transactions that occurred prior to commencement of the period;

``(2) an increase in a variable annual percentage rate in accordance with a credit card agreement that provides for changes in the rate according to operation of an index that is not under the control of the creditor and is available to the general public;

``(3) an increase due to the completion of a workout or temporary hardship arrangement by the obligor or the failure of the obligor to comply with the terms of a workout or temporary hardship arrangement, provided that—

``(A) the annual percentage rate, fee, or finance charge applicable to a category of transactions following any such increase does not exceed the rate, fee, or finance charge that applied to that category of transactions prior to commencement of the arrangement; and

``(B) the creditor has provided the obligor, prior to the commencement of such arrangement, with clear and conspicuous disclosure of the terms of the arrangement (including any increases due to such completion or failure); or

``(4) an increase due solely to the fact that a minimum payment by the obligor has not been received by the creditor within 60 days after the due date for such payment, provided that the creditor shall—

``(A) include, together with the notice of such increase required under section 127(i), a clear and conspicuous written statement of the reason for the increase and that the increase will terminate not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time from the obligor during that period; and

``(B) terminate such increase not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time during that period.

``(c) Repayment of outstanding balance.—

``(1) In general.—The creditor shall not change the terms governing the repayment of any outstanding balance, except that the creditor may provide the obligor with one of the methods described in paragraph (2) of repaying any outstanding balance, or a method that is no less beneficial to the obligor than one of those methods.

``(2) Methods.—The methods described in this paragraph are—

``(A) an amortization period of not less than 5 years, beginning on the effective date of the increase set forth in the notice required under section 127(i); or

``(B) a required minimum periodic payment that includes a percentage of the outstanding balance that is equal to not more than twice the percentage required before the effective date of the increase set forth in the notice required under section 127(i).

``(d) Outstanding balance defined.—For purposes of this section, the term ‘outstanding balance’ means the amount owed on a credit card account under an open end consumer credit plan as of the end of the 14th day after the date on which the creditor provides notice of an increase in the annual percentage rate, fee, or finance charge in accordance with section 127(i).´´.

(c) Interest Rate Reduction on Open End Consumer Credit Plans.—

Chapter 3 of the Truth in Lending Act (15 U.S.C. 1661 et seq.) is amended by adding at the end the following:

``SEC. 148. Interest Rate Reduction on open end consumer credit plans.

``(a) In general.—If a creditor increases the annual percentage rate applicable to a credit card account under an open end consumer credit plan, based on factors including the credit risk of the obligor, market conditions, or other factors, the creditor shall consider changes in such factors in subsequently determining whether to reduce the annual percentage rate for such obligor.

``(b) Requirements.—With respect to any credit card account under an open end consumer credit plan, the creditor shall—

``(1) maintain reasonable methodologies for assessing the factors described in subsection (a);

``(2) not less frequently than once every 6 months, review accounts as to which the annual percentage rate has been increased since January 1, 2009, to assess whether such factors have changed (including whether any risk has declined);

``(3) reduce the annual percentage rate previously increased when a reduction is indicated by the review; and

``(4) in the event of an increase in the annual percentage rate, provide in the written notice required under section 127(i) a statement of the reasons for the increase.

``(c) Rule of Construction.—This section shall not be construed to require a reduction in any specific amount.

``(d) Rulemaking.—The Board shall issue final rules not later than 9 months after the date of enactment of this section to implement the requirements of and evaluate compliance with this section, and subsections (a), (b), and (c) shall become effective 15 months after that date of enactment.´´.

(d) Introductory and Promotional Rates.—

Chapter 4 of the Truth in Lending Act (15 U.S.C. 1666 et seq.) is amended by inserting after section 171, as amended by this Act, the following:

``SEC. 172. Additional limits on interest rate increases.

``(a) Limitation on increases within first year.—Except in the case of an increase described in paragraph (1), (2), (3), or (4) of section 171(b), no increase in any annual percentage rate, fee, or finance charge on any credit card account under an open end consumer credit plan shall be effective before the end of the 1-year period beginning on the date on which the account is opened.

``(b) Promotional rate minimum term.—No increase in any annual percentage rate applicable to a credit card account under an open end consumer credit plan that is a promotional rate (as that term is defined by the Board) shall be effective before the end of the 6-month period beginning on the date on which the promotional rate takes effect, subject to such reasonable exceptions as the Board may establish, by rule.´´.

(e) Clerical Amendment.—

The table of sections for chapter 4 of the Truth in Lending Act is amended by striking the item relating to section 171 and inserting the following:

``171. Limits on interest rate, fee, and finance charge increases applicable to outstanding balances.

``172. Additional limits on interest rate increases.

``173. Applicability of State laws.´´.

Sec. 102. Limits on Fees and Interest Charges.

(a) In General.—

Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is amended by adding at the end the following:

``(j) Prohibition on penalties for on-time payments.—

``(1) Prohibition on double-cycle billing and penalties for on-time payments.—Except as provided in paragraph (2), a creditor may not impose any finance charge on a credit card account under an open end consumer credit plan as a result of the loss of any time period provided by the creditor within which the obligor may repay any portion of the credit extended without incurring a finance charge, with respect to—

``(A) any balances for days in billing cycles that precede the most recent billing cycle; or

``(B) any balances or portions thereof in the current billing cycle that were repaid within such time period.

``(2) Exceptions.—Paragraph (1) does not apply to—

``(A) any adjustment to a finance charge as a result of the resolution of a dispute; or

``(B) any adjustment to a finance charge as a result of the return of a payment for insufficient funds.

``(k) Opt-in required for over-the-limit transactions if fees are imposed.—

``(1) In general.—In the case of any credit card account under an open end consumer credit plan under which an over-the-limit fee may be imposed by the creditor for any extension of credit in excess of the amount of credit authorized to be extended under such account, no such fee shall be charged, unless the consumer has expressly elected to permit the creditor, with respect to such account, to complete transactions involving the extension of credit under such account in excess of the amount of credit authorized.

``(2) Disclosure by creditor.—No election by a consumer under paragraph (1) shall take effect unless the consumer, before making such election, received a notice from the creditor of any over-the-limit fee in the form and manner, and at the time, determined by the Board. If the consumer makes the election referred to in paragraph (1), the creditor shall provide notice to the consumer of the right to revoke the election, in the form prescribed by the Board, in any periodic statement that includes notice of the imposition of an over-the-limit fee during the period covered by the statement.

``(3) Form of election.—A consumer may make or revoke the election referred to in paragraph (1) orally, electronically, or in writing, pursuant to regulations prescribed by the Board. The Board shall prescribe regulations to ensure that the same options are available for both making and revoking such election.

``(4) Time of election.—A consumer may make the election referred to in paragraph (1) at any time, and such election shall be effective until the election is revoked in the manner prescribed under paragraph (3).

``(5) Regulations.—The Board shall prescribe regulations—

``(A) governing disclosures under this subsection; and

``(B) that prevent unfair or deceptive acts or practices in connection with the manipulation of credit limits designed to increase over-the-limit fees or other penalty fees.

``(6) Rule of construction.—Nothing in this subsection shall be construed to prohibit a creditor from completing an over-the-limit transaction, provided that a consumer who has not made a valid election under paragraph (1) is not charged an over-the-limit fee for such transaction.

``(7) Restriction on fees charged for an over-the-limit transaction.—With respect to a credit card account under an open end consumer credit plan, an over-the-limit fee may be imposed only once during a billing cycle if the credit limit on the account is exceeded, and an over-the-limit fee, with respect to such excess credit, may be imposed only once in each of the 2 subsequent billing cycles, unless the consumer has obtained an additional extension of credit in excess of such credit limit during any such subsequent cycle or the consumer reduces the outstanding balance below the credit limit as of the end of such billing cycle.

``(l) Limit on fees related to method of payment.—With respect to a credit card account under an open end consumer credit plan, the creditor may not impose a separate fee to allow the obligor to repay an extension of credit or finance charge, whether such repayment is made by mail, electronic transfer, telephone authorization, or other means, unless such payment involves an expedited service by a service representative of the creditor.´´.

(b) Reasonable Penalty Fees.—

(1) In General.—

Chapter 3 of the Truth in Lending Act (15 U.S.C. 1661 et seq.), as amended by this Act, is amended by adding at the end the following:

``SEC. 149. Reasonable penalty fees on open end consumer credit plans.

``(a) In general.—The amount of any penalty fee or charge that a card issuer may impose with respect to a credit card account under an open end consumer credit plan in connection with any omission with respect to, or violation of, the cardholder agreement, including any late payment fee, over-the-limit fee, or any other penalty fee or charge, shall be reasonable and proportional to such omission or violation.

``(b) Rulemaking required.—The Board, in consultation with the Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision, and the National Credit Union Administration Board, shall issue final rules not later than 9 months after the date of enactment of this section, to establish standards for assessing whether the amount of any penalty fee or charge described under subsection (a) is reasonable and proportional to the omission or violation to which the fee or charge relates. Subsection (a) shall become effective 15 months after the date of enactment of this section.

``(c) Considerations.—In issuing rules required by this section, the Board shall consider—

``(1) the cost incurred by the creditor from such omission or violation;

``(2) the deterrence of such omission or violation by the cardholder;

``(3) the conduct of the cardholder; and

``(4) such other factors as the Board may deem necessary or appropriate.

``(d) Differentiation permitted.—In issuing rules required by this subsection, the Board may establish different standards for different types of fees and charges, as appropriate.

``(e) Safe harbor rule authorized.—The Board, in consultation with the Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision, and the National Credit Union Administration Board, may issue rules to provide an amount for any penalty fee or charge described under subsection (a) that is presumed to be reasonable and proportional to the omission or violation to which the fee or charge relates.´´.

(2) Clerical Amendments.—

Chapter 3 of the Truth in Lending Act (15 U.S.C. 1661 et seq.) is amended—

(A) in the chapter heading, by inserting “AND LIMITS ON CREDIT CARD FEES” after “ADVERTISING”; and

(B) in the table of sections for the chapter, by adding at the end the following:

``148. Interest rate reduction on open end consumer credit plans.

``149. Reasonable penalty fees on open end consumer credit plans.´´.

Sec. 103. Use of Terms Clarified.

Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is amended by adding at the end the following:

``(m) Use of term ‘fixed rate’.—With respect to the terms of any credit card account under an open end consumer credit plan, the term ‘fixed’, when appearing in conjunction with a reference to the annual percentage rate or interest rate applicable with respect to such account, may only be used to refer to an annual percentage rate or interest rate that will not change or vary for any reason over the period specified clearly and conspicuously in the terms of the account.´´.

Sec. 104. Application of Card Payments.

Section 164 of the Truth in Lending Act (15 U.S.C. 1666c) is amended—

(1) by striking the section heading and all that follows through “Payments” and inserting the following:

``§ 164. Prompt and fair crediting of payments

``(a) In general.—Payments´´;

(2) by inserting “, by 5:00 p.m. on the date on which such payment is due,” after “in readily identifiable form”;

(3) by striking “manner, location, and time” and inserting “manner, and location”; and

(4) by adding at the end the following:

``(b) Application of payments.—

``(1) In general.—Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.

``(2) Clarification relating to certain deferred interest arrangements.—A creditor shall allocate the entire amount paid by the consumer in excess of the minimum payment amount to a balance on which interest is deferred during the last 2 billing cycles immediately preceding the expiration of the period during which interest is deferred.

``(c) Changes by card issuer.—If a card issuer makes a material change in the mailing address, office, or procedures for handling cardholder payments, and such change causes a material delay in the crediting of a cardholder payment made during the 60-day period following the date on which such change took effect, the card issuer may not impose any late fee or finance charge for a late payment on the credit card account to which such payment was credited.´´.

Sec. 105. Standards Applicable to Initial Issuance of Subprime or “fee harvester” Cards.

Section 127 of the Truth in Lending Act (15 U.S.C. 1637), as amended by this Act, is amended by adding at the end the following new subsection:

``(n) Standards applicable to initial issuance of subprime or ‘fee harvester’ cards.—

``(1) In general.—If the terms of a credit card account under an open end consumer credit plan require the payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) by the consumer in the first year during which the account is opened in an aggregate amount in excess of 25 percent of the total amount of credit authorized under the account when the account is opened, no payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) may be made from the credit made available under the terms of the account.

``(2) Rule of construction.—No provision of this subsection may be construed as authorizing any imposition or payment of advance fees otherwise prohibited by any provision of law.´´.

Sec. 106. Rules Regarding Periodic Statements.

(a) In General.—

Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is amended by adding at the end the following:

``(o) Due dates for credit card accounts.—

``(1) In general.—The payment due date for a credit card account under an open end consumer credit plan shall be the same day each month.

``(2) Weekend or holiday due dates.—If the payment due date for a credit card account under an open end consumer credit plan is a day on which the creditor does not receive or accept payments by mail (including weekends and holidays), the creditor may not treat a payment received on the next business day as late for any purpose.´´.

(b) Length of Billing Period.—

(1) In General.—

Section 163 of the Truth in Lending Act (15 U.S.C. 1666b) is amended to read as follows:

``SEC. 163. Timing of payments.

``(a) Time To make payments.—A creditor may not treat a payment on an open end consumer credit plan as late for any purpose, unless the creditor has adopted reasonable procedures designed to ensure that each periodic statement including the information required by section 127(b) is mailed or delivered to the consumer not later than 21 days before the payment due date.

``(b) Grace period.—If an open end consumer credit plan provides a time period within which an obligor may repay any portion of the credit extended without incurring an additional finance charge, such additional finance charge may not be imposed with respect to such portion of the credit extended for the billing cycle of which such period is a part, unless a statement which includes the amount upon which the finance charge for the period is based was mailed or delivered to the consumer not later than 21 days before the date specified in the statement by which payment must be made in order to avoid imposition of that finance charge.´´.

(2) Effective Date.—

Notwithstanding section 3, section 163 of the Truth in Lending Act, as amended by this subsection, shall become effective 90 days after the date of enactment of this Act.

(c) Clerical Amendments.—

The table of sections for chapter 4 of the Truth in Lending Act is amended—

(1) by striking the item relating to section 163 and inserting the following:

``163. Timing of Payments.´´; and

(2) by striking the item relating to section 171 and inserting the following:

``171. Universal defaults prohibited.

``172. Unilateral changes in credit card agreement prohibited.

``173. Applicability of State laws.´´.

Sec. 107. Enhanced Penalties.

Section 130(a)(2)(A) of the Truth in Lending Act (15 U.S.C. 1640(a)(2)(A)) is amended by striking “or (iii) in the” and inserting the following: “(iii) in the case of an individual action relating to an open end consumer credit plan that is not secured by real property or a dwelling, twice the amount of any finance charge in connection with the transaction, with a minimum of $500 and a maximum of $5,000, or such higher amount as may be appropriate in the case of an established pattern or practice of such failures; or (iv) in the”.

Sec. 108. Clerical Amendments.

Section 103(i) of the Truth in Lending Act (15 U.S.C. 1602(i)) is amended—

(1) by striking “term” and all that follows through “means” and inserting the following: “terms ‘open end credit plan’ and ‘open end consumer credit plan’ mean”; and

(2) in the second sentence, by inserting “or open end consumer credit plan” after “credit plan” each place that term appears.

Sec. 109. Consideration of Ability to Repay.

(a) In General.—

Chapter 3 of the Truth in Lending Act (15 U.S.C. 1666 et seq.), as amended by this title, is amended by adding at the end the following:

``SEC. 150. Consideration of Ability to Repay.

``A card issuer may not open any credit card account for any consumer under an open end consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the ability of the consumer to make the required payments under the terms of such account.´´.

(b) Clerical Amendment.—

Chapter 3 of the Truth in Lending Act (15 U.S.C. 1661 et seq.) is amended in the table of sections for the chapter, by adding at the end the following:

``150. Consideration of Ability to Repay.´´.