One year ago, many provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 took effect. In conjunction with a conference marking its anniversary today, the Consumer Financial Protection Bureau, the new consumer watchdog agency created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, released a report on the impact of the law. The CFPB will take over responsibility for administering the Credit CARD Act later this summer.
According to the report, the CARD Act did a lot of good for consumers. Overlimit fees all but disappeared from the industry, monthly statements more clearly broke down costs to the consumer, the average late fee dropped and the incidence of rate hikes on existing accounts fell sharply.
For its analysis, the bureau conducted a voluntary survey of the nine largest credit card issuers, commissioned a survey of cardholders and used data from several other studies developed for the conference, including a report from the Office of the Comptroller of the Currency.
The good news
"A number of issuers have eliminated some of the practices that can confuse customers and cost them money they reasonably did not expect to pay," Elizabeth Warren, an assistant to the president and special advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau, said at the conference.
- Drop in overlimit fees. The CARD Act banned issuers from charging an overlimit fee unless the consumer had opted-in to permit the card issuer to approve overlimit transactions. Without such action by the consumer, the issuer could not charge a fee for exceeding the limit.
The CFPB's industry survey found that six of the nine issuers no longer charge overlimit fees. The share of accounts that charged an overlimit fee has fallen from about 12 percent per year to 1 percent.
- Drop in average late fee. The CARD Act set limits on credit card penalty fees, including late fees. The safe harbor amount is $25 for the first violation, and $35 for a repeat offense within the next six billing cycles, with the fee not to exceed the minimum payment due.
The average late fee has since dropped from $35 to $23, according to the OCC study.
- Drop in rate hikes applied to existing accounts. The CARD Act prevented credit card issuers from raising the rate on an existing balance unless one of four exceptions was applicable. Issuers could raise the interest rate on new transactions, but could only do so with 45 days advance notice.
The OCC study found that prior to the Credit CARD Act about 15 percent of accounts were repriced during a one-year period; post-CARD Act the number dropped to 2 percent.
- Credit card costs clarified. Monthly statements must now state how much you must pay each month to clear the balance in three years, the total cost if you only make the minimum payments and the total amount of interest charged year-to-date.
According to the CFPB's consumer survey, 31 percent of cardholders who noticed the changes on their monthly statement said it prompted them to either increase their payments or reduce their use of credit. About 60 percent of those that noticed the new information said their statements were easier to read and understand, compared to a year ago.
A look ahead
In her remarks at the conference, Warren indicated there was room for improvement.
"Our next challenges will be about further clarifying price and risk and making it easier for consumers to make direct product comparisons," she said.
Do you think the CARD Act personally helped or hurt you?
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