A new report released today by the Pew Health Group's Safe Credit Cards Project shows the impact the Credit Card Accountability, Responsibility and Disclosure Act (CARD) Act of 2009 has had on the credit card marketplace.
"The CARD Act accomplished its goal, and that was to make the credit card market a more transparent and fair place for consumers," says Ardie Hollifield, senior research associate at the Pew Health Group. A number of credit card practices that the Federal Reserve deemed "unfair" or "deceptive" have gone away because of the law, she says.
For instance, overlimit fees have all but vanished when compared to previous surveys. As of Feb. 22, the Credit CARD Act required issuers to get prior customer consent before charging a fee for going over the limit. In July 2009, nearly 80 percent of the cards surveyed disclosed an overlimit fee. In the March 2010 survey, just one in four cards charged the fee.
In addition, "hair-trigger" penalty rate increases, triggered by minor missteps such as being one day late with a payment, have disappeared. The new credit card law prevents issuers from raising the rate on an existing balance due to delinquency until the account is 60 days past due.
"We've seen some of those worrisome practices go away as a result of the CARD Act," says Hollifield.
The research also shows that in other ways, credit cards are getting more expensive.
Upticks in fees, rates
- Some issuers have stopped disclosing the penalty interest rate. While 94 percent of bank cards and 46 percent of credit union cards included penalty rate terms in disclosures, nearly half of those cards didn't state the penalty APR that would be triggered by an account violation. Where disclosed, the median penalty rate was 29.99 percent.
Rules on penalty fees that take effect Aug. 22, as part of the CARD Act, will not cap penalty interest rates.
- Interest rates on purchases have soared. The Credit CARD Act did nothing to cap interest rates. Overall, advertised purchase rates on bank cards increased by more than 30 percent between December 2008 and March 2010. The highest advertised APRs for credit union cards rose by 17 percent between July 2009 and March of this year. Median purchase rates on bank cards ranged from 12.99 percent (the lowest advertised rate) to 20.99 percent (highest advertised rate), while credit union rates ran from 9.9 percent (lowest advertised rate) to 16.15 percent (highest advertised rate). Only two credit cards in the March survey, both issued by credit unions, offered fixed interest rates on purchases.
- Transaction fees inched higher. Median cash advance fees and balance transfer fees on bank-issued credit cards rose from 3 percent of the transaction amount in July 2009 to 4 percent in March. Credit unions charged a median balance transfer fee and cash advance fee of 2.5 percent, the latter of which increased from 2 percent in last year's survey.
- Higher annual fees. Though actually dropping in prevalence over the past year from 15 percent of all surveyed cards in July 2009 to 14 percent in March 2010, the median annual fee rose from $50 to $59 on bank-issued cards and from $15 to $25 for credit union cards.
Pew researchers conducted the most recent survey in March 2010 by examining the credit card disclosures from the 12 largest banks and 12 largest credit unions, which together control 91 percent of credit card debt nationwide.
How has the CARD Act affected you?
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