It’s just over a year since the Credit Card Accountability Responsibility and Disclosure (CARD) Act came into effect but has it heralded a change for the better for credit card users?
The bill was introduced to limit the ways in which credit card companies could charge consumers and though it was first passed in the 110th United States Congress it was never given a vote in the Senate. It was then reintroduced in 111th United States congress, was finally signed into law by President Barack Obama on May 22nd 2009 but did not actually take effect until February 22nd 2010.
The reason for this delay initially looked like it could be for the benefit of consumers because, whereas the initial bill had no provision for existing credit card contracts, the bill that was finally passed was backdated to take existing contracts into account.
This delay in the bill’s effective date was imposed to give the banks time to prepare for the changes and notify customers but the banks used this window to their advantage and promptly raised interest rates and penalty charges before the new laws took hold.
This cynical move by the banks pretty much negated any of the intended benefits and consumers were dealt a further blow by the news that the act did not include price controls, rate caps or fee setting.
Although there are no cover-all rules on fee setting, the CARD Act has capped some penalty fees and so the first late fee can be no more that $25, which is a far more reasonable figure than the $39 fees that were being charged by some lenders.
And whilst interest rates were not capped, the act did put a stop to lenders arbitrarily putting up interest rates and also prohibited banks from increasing the interest on money that had already been borrowed. But consumers need to be aware that if they carry out a balance transfer to another card then this balance will be subject to the interest rates imposed by the new lender.
Another term of the Act is that credit card companies are now required to give consumers a 45-day notice period before they can implement major changes to credit card terms and conditions. This should benefit customers as it will give them time to prepare for any changes imposed.
Banks also used the new legislation as an opportunity to cut back the amount of money they were lending to consumers. They did this by cutting credit card limits, closing accounts and only lending to customers that they deemed to be a lower risk.
The fact that the banks are unwilling to lend to anyone with a credit score below 620 and the fact that credit card maildrops have dramatically reduced is a clear indication that the banks are aware that they have been irresponsible with their lending in recent years.
But whilst responsible lending is undoubtedly a positive step, the culling of credit limits offers no short term benefit to consumers that have become reliant on credit in recent years.
One part of the act that does seem to have had a positive short term affect is the fact that lenders must now have clearer terms and conditions that let consumers know exactly how much the card balance will cost over time. And a recent Consumer Reports poll has shown how this has prompted one in four borrowers to pay more than the minimum payment each month.
Overall, it would appear that there have not been many short term benefits for consumers as the banks have turned many of the conditions and circumstances surrounding the to their own benefit.
But, it is likely that consumers will benefit in the long run as more transparent terms and lower penalty fees mean that borrowers will have fewer nasty surprises in future. And the fact that the banks and credit card companies are being forced to lend more responsibly means that people will no longer be given the opportunity to run up insurmountable levels of debt.