Charge! The CARD Act is Financial Reform That Works
Congress hasn't gotten much credit (including from me) for addressing the financial challenges of consumers and small businesses. But one thing lawmakers did get right was the Credit Card Accountability, Responsibility and Disclosure Act, or CARD.
The 2009 law is succeeding in curbing a range of practices that banks formerly used to gouge cardholders, according to a recent report by The Pew Charitable Trusts. Customers now have more time -- specifically, 45 days -- to evaluate changes in rates or fees before those changes may be applied. Card issuers are restricted in how they raise interest rates on existing balances. And starting this month, late-payment or other penalty fees must be considered "reasonable and proportional." Pew concludes:
In most respects, pricing information in the market reflects the elimination of many of the harmful practices that were once widespread. Credit cards are now safer and more transparent for consumers than at any time in recent years.Take the fees that card issuers charge when people exceed their credit limit. Before CARD, more than 80 percent of all cards imposed overlimit fees -- now fewer than a quarter of cards do so. The use of so-called arbitration clauses to make it harder for consumers to settle a dispute in court is also down. Only 10 percent of cards feature such provisions, down from 68 percent shortly before the legislation took effect last year.
What hasn't changed is the size of penalties. Late and overlimit fees for bank cards have held steady, at a median rate of $39. Credit unions boosted late fees from a median of $20 to $25, but left overlimit charges unchanged, at $20. Cash-advance, balance-transfer and other fees also are up. Since last summer, banks have hiked the median annual fee on cards to $59, up 18 percent, according to Pew. Credit unions raised the charge 67 percent, to $25 (click on chart to expand).
Meanwhile, CARD isn't stopping financial firms from circumventing -- and possibly breaking -- the new law to impose new charges. As the WSJ detailed over the weekend:
[S]ome of the biggest card issuers in the U.S., including Citigroup Inc. (C), J.P. Morgan Chase & Co. (JPM) and Discover Financial Services (DFS), are already rolling out a slew of fees designed to recapture some of their lost income, in part by skirting the new rules. Some banks may even be violating the law outright, say consumer advocates.
"Card companies are figuring out how to replace old fees with new ones," says Victor Stango, an associate economist with the Federal Reserve Bank of Chicago and a professor at the University of California.The National Consumer Law Center, a consumer advocacy group, says big card issuers may be violating CARD in several ways. For instance, it cited Citibank in noting that some banks are failing to provide cardholders with at least 21 days between the time a statement is mailed and the due date. Other issuers, including Bank of America (BAC), have offered credit cards without disclosing their penalty rates, as required under the law.
Presumably, these are the sort of niggling, but significant, offenses that the new Consumer Financial Protection Bureau, perhaps with Elizabeth Warren at the helm, will examine as it ramps up.
Image from Wikimedia Commons, GNU 1.2
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