CARD Act Results in Positive Change for Consumers

Two years ago, President Obama signed the Credit Card Accountability Responsibility and Disclosure Act to help protect consumers from being taken advantage of by credit card issuers. Many experts predicted cardholders would witness a spike in interest rates and fees. Today with the new law in place, the Pew Charitable Trusts says it looks like the legislation is working as it was designed to, as the fees associated with late payments have declined and interest rates have stabilized.

About the CARD Act

The President signed the act in May 2009 to protect consumers from abrupt contract changes and to limit fees. Many of the provisions took effect in February 2010, including restrictions regarding interest rate increases. The Federal Reserve approved rules regarding late fees which went into effect last August. For first-time late payments, cardholders cannot be charged more than $25. For any additional late payments made within six months of the first delinquency, issuers can charge a maximum of $35.

The Data Highlights Change

Two years later, it is apparent the CARD act has affected consumers in a positive way and is doing what it was penned to do. According to the Pew Charitable Trusts Safe Credit Cards Project, late payment fee charges have declined and interest rates have stabilized rather than skyrocketing upwards.

The non-profit recently conducted a study which included 300 consumer credit cards offered online by the 12 largest banks and 12 largest credit unions, accounting for 90 percent of the credit card debt in America. It studied the fine print for cards offered back in May 2010 compared with ones offered in January 2011 and found the amount banks charge cardholders in late fees had decreased. The frequency with which cardholders are charged late fees remained unchanged, though. The report states that the median of late payment charges used to be $39. This figure has dropped to a range of $25 to $35 just as the new law prescribes.

As far as the median advertised interest rate for purchases on bank-issued cards, they remained unchanged with a range of 12.99% to 20.99%. Credit union interest rates only increased slightly to between 9.99% and 17%. Even penalty interest rates for late payments remained steady, as well as cash advance interest rates. Annual fees also remained steady at a median rate of $59, but you’ll notice more credit card offers come wrapped up with annual fees. This segment jumped from 14% to 21% in bank-offered cards and remained unchanged at 14 percent for cards issued by credit unions.

The good news is that despite predictions of interest rates and other fees skyrocketing, things are holding steady for cardholders for the most part. Although banks are increasing the number of cards with annual fees, it is still easy enough to locate the no annual fee cards. Also, many of the cards with annual fees could be associated with a rewards program and other perks that make up for the annual fee.

Lindsay Curry

Lindsay Curry holds a bachelor's degree from the University of Massachusetts. Lindsay has an extensive background in finance, working for a Fortune 500 company for a number of years. She is a regular contributer to numerous online and print publications, with a focus in personal finance and credit card industry.