It's been three years since President Barack Obama signed the landmark CARD Act that banned many egregious credit card practices and ushered in new consumer-friendly regulations.
So far, the act largely has the makings for an A+, but its work remains incomplete, says one recent study. While many Americans are faring better with their credit cards, too many rely on them for basic needs and to cover medical care.
Fewer households (28 percent) reported accruing late fees in a study this year by policy center Demos, compared with half in the last study in 2008. The report attributes part of the decline to the CARD Act's requirement that issuers deliver credit card bills 21 days before the due date.
Those who did mail in a payment late were less likely to see their interest rate rise. Twenty-nine percent reported an increase after a late payment this year. That's down from 53 percent four years ago. The CARD Act bans rate increases in the first year, unless you are 60 days past due, among other caveats. The act also requires issuers to give cardholders a 45-day notice for a rate hike.
African-American and Latino households also were more likely to benefit from the CARD Act's restrictions on over-the-limit fees. Before, issuers could green-light a purchase that puts a cardholder over his limit and then charge a fee. Now, cardholders must OK over-the-limit transactions ahead of time before an issuer can assess a fee. Otherwise, the issuer will deny the purchase.
The CARD Act hasn't just changed issuers' practices. It has also altered consumer habits -- for the better, according to the study.
A third of households reported paying down credit card balances after seeing how costly paying the minimum payment would be. Credit card statements now are required to show how long it will take to pay down a balance by just paying the minimum; how much you need to pay each month to get the balance to zero in three years; and how much you pay in interest in both scenarios. The disclosure highlights the amount of interest you save if you commit to the latter payment plan.
Overall, the average credit card debt dropped by more than 25 percent to $7,145 this year from $9,887 in 2008.
Still, many U.S. households depend on their credit cards to cover fundamental needs. Two out of 5 households reported using credit cards to pay for basic expenses such as groceries, rent, the mortgage, utilities or insurance in the last year. That was unchanged from 2008.
The study also showed a correlation between credit card debt and medical expenses. Almost half of the households surveyed said part of their credit card debt paid for medical expenses. Medical debt on credit cards average $1,678.
These findings are out of the scope of the CARD Act, as the report concedes. But it underscores the need for Americans to focus on debt reduction, building emergency savings and using credit cards responsibly to gird against hard times.
Has the CARD Act made a difference in your life?
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