Study: Credit card law has cut consumer costs

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(MoneyWatch) A consumer protection law passed in 2009 has reduced the fees Americans pay on their credit cards and ensures they no are no longer charged for going over their credit limit, according to a new report.

The U.S. Consumer Financial Protection Bureau this week credited the Credit Card Accountability, Responsibility and Disclosure, or CARD, Act with lowering fees, making costs easier to understand and protecting consumers from being issued credit cards they cannot afford. However, the report also said several problem areas still exist, including consumers with poor credit being charged high fees when they first open an account.

The regulatory agency, which was created in 2010 under the Dodd-Frank financial reform law to protect consumers from financial abuse, said the average credit card late fee paid by consumers has fallen $6 since the CARD Act went into effect. In the past year alone, the law has saved consumers $2.5 billion in fees they would otherwise have been charged for exceeding their credit limit and has reduced late fees by $1.5 billion, according to the bureau.

"This report confirms the law is making a big difference in protecting people from some of the worst industry practices," Pamela Banks, senior policy counsel for Consumers Union, an advocacy group, said in a statement. "Penalty fees are down, and your bill provides better information about the true cost of your credit. There are still issues in the marketplace that need serious attention, but this report shows we've made a lot of progress in a relatively short period of time."

The CFPB also said CARD has made it easier to accurately compare costs when shopping for cards. "Limitations on 'back-end' fees, along with restrictions on an issuer's ability to raise interest rates, have simplified a consumer's cost calculations," the study said. "Credit card costs are now more closely related to the clearly disclosed annual fees and interest rates. This greater transparency means a consumer deciding whether to charge a purchase can now make that decision with far more confidence that costs will be a function of the current interest rate rather than some yet-to-be determined interest rate that could be reassessed at any time and for any reason by the issuer."

Although it is true that since 2008 it has become increasingly difficult for people with inadequate income and assets to get credit cards, the report says that has more to do with economic conditions than the CARD Act.

Kenneth Clayton, chief counsel for the American Bankers Association, disagreed with that assessment. "The CARD Act has provided significant benefits, including consumer protections and tools that allow people to better manage their accounts," he said in a statement. "But the CARD Act has also come with unintended consequences that have raised contract interest rates and reduced access to credit. Regulatory limits on banks' ability to manage risk have created a roadblock for people who are new to credit or who have struggled in the past and want a second chance."

The CFPB also raised concerns about two types of cards mostly used by lower-income consumers. The first is a "fee harvester" card that charges application and activation fees. The other is a "deferred interest" card that, while it doesn't charge consumers any interest for a certain period of time, can assess retroactive interest if the balance isn't paid in full by that date. The agency said it would continue to monitor both activities.

The CFPB administers the CARD Act and this study was mandated by Congress. The report's findings echo those of an independent study released last month.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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