Credit card holders could have been charged $2.5 billion more in overlimit fees if the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) had not been signed into law in 2009, according to the Consumer Financial Protection Bureau.
The CFPB, the government agency that has overseen the CARD Act since July 2011, released a report last month detailing the changes that have taken place since its implementation.
The CARD Act does not allow credit card issuers to charge overlimit fees unless customers opt-in to the practice. Before the Act, issuers could allow cardholders to go over their credit limit and then charge them a fee.
The CFPB report calculated overlimit penalty fee rates at their 2008 level and the number of overlimit occurrences at their 2007 level, to estimate that consumers would have paid $2.5 billion more in 2012 if the Act had not been adopted.
Late fees, too, have been greatly reduced since the CARD Act. It called for penalty fees to be “reasonable and proportional” to the infraction. Post-CARD Act, the average late fee is $6 lower, translating to an estimated $1.5 billion drop in late fees in 2012.
Overall, the cost of credit is down by two percentage points since 2008. These costs include not just fees, but interest and finance charges as well. And there is plenty of available credit to go around–$2 trillion worth, according to the CFPB.
The wide availability of credit is due in part to the fact that credit issuers can no longer raise cardholders’ credit limits on their own, according to the report. Instead, consumers must call to request a higher limit. Since many do not, more credit is available.
A separate report concluded that the CARD Act reduced the cost of credit to the tune of $20.8 billion per year. University of Chicago Booth School of Business professor Neale Mahoney and NYU Stern professor Johannes Stroebel’s paper, Regulating Consumer Financial Products: Evidence from Credit Cards, supported the CFPB’s claim that the CARD Act is saving money for consumers.