It’s been two years since the landmark Credit Card Accountability Responsibility and Disclosure Act of 2009 was signed into law, and by all accounts, it’s led to some pretty significant changes in the giant industry grinding away behind those little pieces of plastic.
“The Credit CARD Act was passed in response to unfair practices. I think it’s one of the most important and tremendous pieces of legislation for consumers,” says Ed Mierzwinski, consumer advocate at watchdog group U.S.-PIRG. “It banned the worst credit card practices. We’ve all benefited.”
Other consumer advocacy organizations echo this assessment and even the American Bankers Association came around after initially saying that the law would be harmful to consumers (and, presumably, banks). “I think there have been a lot of positive changes for consumers,” says Nessa Feddis, vice president and senior policy counsel for the ABA. But she also says interest rates are higher on average and some people have a tougher time getting credit.
“It’s a mixed bag,” Feddis says. That is true, whether or not you trust her motives — or those of people like Mierzwinski, who charge that the law doesn’t go far enough in shielding Americans from credit card issuers. Below, we break down the most important ways the CARD Act impacts consumers, for better and for worse.
The Good Stuff
- Consumer advocates agree that the biggest boon the CARD Act delivered is the prohibition on raising existing balances if an account isn’t delinquent. Previously, issuers’ ability to increase the APR at any time, for any (or no) reason made carrying a balance a risky proposition. Millions of people did anyway, of course, and many were left with little recourse when their APRs skyrocketed. Issuers can still increase rates on variable-rate cards, which is what most issuers switched to in response. This lets the bank pass along the cost to customers when the prime rate goes up.
- Close behind in terms of consumer protections afforded by the CARD Act are the strict limits on rate increases: a 45-day warning card companies must give customers before they ratchet up APRs on new balances, and a six-month minimum for initial teaser rates. Excluding promotional teaser rates, card companies can’t change your APR for the first year you have the card.
- Card companies now have to give customers 21 days to make payments from the time when the bill is sent. This gives people a little extra breathing room, especially if they use snail mail to pay their bills or are living paycheck to paycheck. The CARD Act also put the kibosh on certain tricks like stipulating that a bill had to be paid by some arbitrary time on the due date — now, you get until 5 p.m.
- Back in the day, credit card companies would allow customers to exceed their credit limits (which is absolutely horrible for your credit score, but that’s another story), then slap them with an overlimit fee. Watchdog group Consumer Action crunched the numbers in 2008 and found that 95 percent of all cards charged overlimit fees that averaged $29.13. Now, customers must explicitly opt in if they want to exceed their limit.
- Late fees can still be levied, but they’ve been reined in. That same Consumer Action study also found that the average late fee in 2008 was $25.90, although some issuers charged as much as $39. The CARD Act caps late fees at $25 for a first offense and $35 if you slip up twice in six months. In addition, the issuer can’t bump your APR up to a penalty rate until you’re 60 days late.
- For consumers who carry a balance, credit card issuers now have to apply all payments above the minimum to the portion of the debt carrying the highest interest rate. Previously, issuers would funnel any additional payments towards the low teaser rate balance; meanwhile, high-rate balance would just keep growing.
- There’s nothing like seeing the life cycle of your debt laid out in black and white to make you think twice about pulling out the plastic. Previously, it was pretty easy for consumers just to focus on the monthly minimum payment — which was what card companies wanted. Now, they have to clearly disclose on your statement how much interest you’ll be paying and for how long you’ll be making payments if you only fork over the minimum each month.
- The lag between when the CARD Act was crafted and when key provisions go into effect gave credit-issuing banks a temporary license to nickel and dime. Anecdotal reports abound of card companies hiking interest rates en masse before the law kicked in, and the numbers back up these stories: A study by the Pew Charitable Trusts found the average advertised APR ticked up by two percentage points between December 2008 and July 2009.
- Issuers are allowed to add new fees and increase many existing ones, and they’ve been taking advantage of this: More than 20 percent of bank-issued cards now carry an annual fee, with an average amount of $59. The costs to get a cash advance, transfer a balance and make a foreign currency transaction have all risen since the CARD Act’s implementation. And card companies are experimenting with other fees, charging customers for things that used to be free, like getting paper statements in the mail.