In the war between corporations who abhor regulations of any kind and consumers who regularly get screwed by unregulated corporations, a heartening victory has been achieved via the Credit CARD Act pushed by President Obama and passed by Congress in 2009 over the strong objections of the banking and credit-card industry.
CARD stands for Credit Card Accountability Responsibility and Disclosure. Also known as the credit-card-holders’ Bill of Rights, CARD reins in some of the credit-card industry’s most egregious practices. And a new study [May 2012] by DEMOS shows that, three years down the line, the law is, in fact, helping consumers.
Before
Let’s review. According to creditcard.com, before Congress enacted the CARD Act, credit-card companies could:
-Raise interest rates at any time, for any reason, including rates on existing balances. It was the only major form of consumer lending in which the terms of your loan could change after you borrowed, at the sole discretion of the lender.
-Mail a bill 14 days before it was due, and change the due date and time at will.
-Automatically push consumers into high-cost plans that let you exceed your credit limit, for a fee.
-Market cards on college campuses and shower 18-year-old college students with freebies to induce them to sign up for credit cards.
-Apply payments in a way that maximized finance charges, by paying off low-rate charges first, leaving high-rate charges churning up finance charges.
After
The CARD act changed all that, says creditcard.com.
When its major provisions took effect in February 2010, it instituted a sea change in how credit cards were priced, marketed and used. Among other things, the law:
-Banned “any time, any reason” interest rate hikes on existing card balances. Except under a limited number of circumstances, such as paying late by 60 days or more, the deal the card issuer offered had to stay intact for at least the first year.
-Forced issuers to give consumers at least 21 days before bills were due and discouraged arbitrary due date shifts.
-Changed the over-limit rules from “opt-out” to “opt-in.” Instead of being automatically enrolled, consumers have to agree to be enrolled in such plans.
-Limited most late fees to $25.
-Barred card issuers from aggressively marketing cards on campus and limited the availability of credit cards to adults younger than 21.
-Required that any amount consumers paid over the minimum payment to be applied to the balance with the highest rate, which helps knock down the size of the most costly balances.
The plastic safety net
Anyone who has ever had a credit card has probably run up against at least one of the pre-CARD-Act abuses perpetrated by credit-card issuers. CARD’s effect has been to increase the fairness and transparency of credit cards, to help people understand the terms of their credit-card debt, and to remove the element of surprise.
DEMOS’s new study offers a three-year report card on the day-to-day effects of the CARD Act, and the news is good. In its report, called The Plastic Safety Net, DEMOS says that the CARD Act is helping households pay down balances faster and avoid fees:
-One third of households are responding to new information included on credit card statements by paying their balances down faster.
-The number of households who report paying late fees on their credit cards has declined dramatically: in our 2008 survey, half of households reported accruing late fees – in 2012, it was just 28 percent.
-Those who did make late payments were significantly less likely to see their interest rate increase as a result: 24 percent fewer households reported interest rates increasing as a result of a late payment in 2012 than in 2008.
– Over-limit fees, which were previously imposed month after month, whether or not the cardholder had signed up for the service, have all but disappeared among the households we surveyed.
Unfinished business
While the news about the 2009 CARD Act is encouraging, the law doesn’t—and can’t—change some basic facts about credit card use.
According to DEMOs, during the past year, 40 percent of households used credit cards to pay for basic living expenses, such as rent or mortgage bills, groceries, utilities, or insurance because they did not have enough money in their checking or savings accounts. Also, over the past three years, 39 percent of households have found themselves with reduced access to credit, either because their cards have been cancelled, their credit limits reduced, or they’ve been denied a card when they applied for it.
It’s still not a perfect picture, but the 2009 Credit CARD Act is making an important difference. It’s a major and welcome change, but one that is easy to miss, because it’s about what isn’t happening on your credit card bill anymore.