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The Consumer Financial Protection Bureau (CFPB) just released a detailed report that evaluates the performance of the Credit Card Accountability Responsibility and Disclosure Act of 2009 – more commonly referred to as the CARD Act. The analysis gives the legislation high marks, citing a significant reduction in penalties and fees paid by cardholders, plus greater overall transparency and clarity when it comes to card agreements. The findings also showed a notable decline in the cost of credit since the Act was passed.
Credit Costs Have Dropped
The Act was passed in the spring of 2009, but it wasn’t until the summer of 2011 that the CFPB took over the enforcement of the CARD Act, and also assumed responsibility for monitoring its effectiveness. The new report represents the most complete review of the Act by the CFPB to date, and the results are encouraging. The CFPB learned, for instance, that the total cost of credit – including such things as fees, penalties, and interest paid – fell by 2% between 2008 and 2012. The drop happened even though annual fees and interest rates rose during that same timeframe. The CFPB considers that a sign that consumers are more aware and conscious of what charges they are signing up for when they select a credit card. Meanwhile, the amount of untapped credit now available to consumers is a whopping $2 trillion.
Highlights from the Report
- One of the purposes of the Act is to prevent banks from charging unreasonably high fees. The report shows that the average late fee charged to cardholders fall by approximately $6 since the CARD Act took effect. A savings of $6 may not seem significant on an individual basis, but the report explains that the overall savings add up to more than $1.5 billion.
- Banks are also no longer allowed to let cardholders go over their credit limit unless they have signed up for overlimit coverage and agreed to pay for it. Thanks to the CARD Act, virtually all of those costs to consumers have been eliminated. Today, consumers pay approximately $2.5 billion less in overlimit fees than they did prior to the CARD Act.
- Another purpose to the Act was to control the issuing of credit cards to young people who are not yet financially capable of using them responsibly. That phenomenon can ruin a young adult’s credit and saddle them with debt for years. In the wake of the CARD Act, however, the number of people between age 18 and 20 who have a credit card has fallen by 50%.
Vision Going Forward
Despite a positive report, the CFPB said there remains room for improvement in four key areas. The bureau wants to crack down on deceptive marketing practices related to cardholder extras, such as identity theft protection and credit monitoring services; they will be monitoring credit cards to ensure they are not charging more than 25% of the card’s initial card limit for application fees; and the CFPB will continue to assess deferred interest products. The report said 43% of subprime credit scores are charged retroactive interest in a lump sum.
The final area the CFPB mentioned needing improvement is transparency. They want to ensure consumers online are able to access their cardholder disclosure forms because they are not as easy to find online. Similarly, the bureau also wants to be sure that disclosures related to rewards card programs are clear and transparently presented to cardholders, many of which are very complicated to understand; finally, the terms of the grace period and what it means to consumers will continue to be reviewed by the bureau.
To view a copy of the full report, here.
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