CARD Act Is Having The Effect Of Lower Fees And Fewer Interest Rate Hikes

Now that it is one year old, The CARD Act is continuing to produce results for consumers.   According to the new Consumer Financial Protection Bureau, not only have many fees been going down or disappeared, but card holders are seeing fewer interest rate hikes as well.   They have even released a factsheet outline the benefits consumers have realized.

Interest Rate Hikes Are Way Down

Unless you miss two consecutive payments, your interest rate on your existing balance will not change under CARD.   If your rate is raised, it only affects future purchases, and even then, you have 45 days to pay your balance and close your account.   The result has been that interest rate hikes have gone from 15% per year to less than 2%.   Even then, banks are only looking to raise interest rates on people who have been delinquent, rather than blanket rate increases on everyone.

Fees Drop Dramatically

Bills are now due on the same day every month, and they have to give you 21 days to pay your bill.  Late fees are capped at $25 for the first time, and $35 the next time.  They also cannot be greater than the amount owed, although Barclay’s banks seems not to have gotten that memo. The result has been that late fees paid by consumers have gone from $901 million to $427 million, less than half the previous amount.

No More Over The Limit Fees

The practice of approving a charge beyond a cardholder’s limit, only to penalize the cardholder was one of the most hated of the “tricks and traps” eliminated or curtailed by the CARD Act.   Naturally, banks claimed they were providing a valuable service that customers wanted.  The CARD Act required that customers actually approve these over the limit transactions.   In reality, very few people chose to accept these fees and they dropped from over 12% of cardholders to less than 1%.   The CFPB sees them as being virtually eliminated.

Less Confusion

Their factsheet also highlights that most consumers now know that their bill is due on the same day every month, and they are noticing the new information about how long it will take them to pay their balance and what the total cost of their payments will be.

Is There A Downside?

Certainly, there were a rash of interest rate hikes imposed in advance of the CARD Act implementation.  Furthermore, more cards are charging an annual fee while many others have raised theirs.   I have argued that these costs are clearly communicated and shouldn’t surprise anyone, in contrast with the previous regime of tricks and traps.

Some people will always find some fault with CARD, but from where I am standing, it seems like this law has had dramatic benefits for all consumers who use credit cards.