Has the Credit CARD Act Benefitted Consumers?

Has the Credit CARD Act Benefitted Consumers?

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.

Article written by Les Roberts, credit writer for MSM.  Picture by Andres Rueda on Flickr.

10 Responses to Has the Credit CARD Act Benefitted Consumers?

  1. Tell someone who can’t get a credit card and even build credit that the law was helpful. My gf had some medical bills from college go into collections from when she was hit by a car, and now she’s making $60,000 a year and can’t get approved for a freaking credit card. What kind of messed up rules don’t extend credit to someone with only a few thousand in student loan liability, one blemish on her report 4 years ago, and a steady stream of solid income?

    She’s trying to work with the collection agency to settle and get the accounts removed from her credit report, but until that happens, she can’t get a credit card and start building credit.

  2. In the long run, it appears that the banks will raise fees to make up for the loss of these particular fees. So far, I remain unaffected, but I expect there will be increases.

  3. The credit card act was long overdue and definitely helps consumers. When you don’t enforce laws against anti-competitive behavior (allowing large banks to just buy every small bank that provides competition…) you need to do something to stop the absolute most egregious forms of abuse of power. That is what this law did stop some of the worst abuses caused by failure to regulate in a way that provides actual competition.

    • John,

      But the FDIC and the government allowed these mergers. Banks that were ‘too big to fail’ were made even bigger now, by government intervention. They are now even a bigger risk.

      “That is what this law did stop some of the worst abuses caused by failure to regulate in a way that provides actual competition.”

      Provide competition?? Where? How does the new law provide competition?

      The law only added additional rules and regulations that makes it harder to make a profit. So what do the banks do? They make it harder for the risker borrowers to get credit and forces the banks to do other odd ways to make money on via their credit cards. It’s also raised the fees on good borrowers. So remind me what was the purpose of this law again?

      • My argument is not that this act fixes the problem of politicians providing huge anti-competitive advantages to those giving the politicians large amounts of cash. I am saying the act is benefit in a world where the politicians provide huge payoffs to those giving the politicians lots of cash.

        If we wanted to stop electing politicians that did this I would be happy. But we keep electing the same people who then hand out huge benefits to those that pay them well (at the expense of the pubic good). Given that is the world we live in, the act is a good measure.

      • Oh and the purpose of the law was that the abuses can go so far that it isn’t palatable to let it continue. To let it continue might derail the majority of paid for benefits, so the act was a band aid to prevent the most ludicrous abuses of the large banks, which were made possible by the anti-competitive environment that politicians granted their large donors.

        The politicians don’t want to change the rules, so that they can’t be bought (and so the system doesn’t allow people that are not bought to be elected in significant numbers). They just want to change most obvious abuses to make sure they can continue getting huge amounts of money by providing much larger payoffs to those that give them money.

        • I’m all for transparency in which is part of the law. I do think this aspect of the law is good.

          One of the unintended consequences is the prime borrower rates went up because of the field was leveled for everyone.

          Being in live in NY I’m certainly not voting for the politicians that have been proponents of these laws. Unfortunately I’m only one person.

  4. Until our world financial systems become 80% market driven and 20% regulated, banks and credit card companies will screw their users for everything they can get out of them.

    They have proven themselves incapable to regulate themselves so our Governments need to do it for everyone’s well-being.

  5. In the 1970’s when my parents moved to the United States, they couldn’t get approved for a credit card because they were new immigrants, had no credit history, and had no one to vouch for them.

    Getting a card is much easier today, both for new immigrants and for 18-year-olds!

    While I generally disagree with a lot of government regulation, I do think it is important for fees, policys and other important information to be communicated upfront in clear, simple terms.

  6. Very few things Congress does actually benefit consumers, taxpayers, or “do the right thing”. It’s constant tinkering, the law of unintended consequences and political pandering.

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