Almost five years ago, the Credit CARD Act of 2009 was signed into law. Since then, the way that credit card issuers interact with consumers has changed. Many experts think that the CARD Act has been a success. “The CARD Act has generally been very positive and successful,” says Kevin Gallegos, the vice president of Phoenix operations for Freedom Financial Network. “It has proven to help many cardholders reduce their credit card debt load.”
According Gallegos, there are four ways that the Credit CARD Act has benefited consumers:
1. Cutting Interest Rate Hikes
“The CARD Act prohibits card issuers from raising interest rates on existing purchases unless the cardholder misses two payments in a row,” Gallegos says. “Consumers mush also be given 45 days’ notice before rates are raised on new purchases.”
Prior to the Credit CARD Act, according to Gallegos, 15 percent of accounts experienced rate hikes, and now that has been reduced to two percent. This helps consumers, since they are better able to pay down their debt without worry that an interest rate hike is going to reduce the effectiveness of their payments. More money goes to principal, rather than being used on increasing interest charges.
2. Restricting Late Fees
“In the first 10 months after the CARD Act took effect, the total late fees consumers paid was slashed from $901 million to $427 million,” Gallegos says. Not only are fewer households paying late fees (28 percent in 2012 versus 52 percent in 2008), but the average late is now lower, decreasing from $35 to $23. This takes pressure off consumers who are strapped for cash, living paycheck to paycheck. And, again, it can also aid as consumers work to pay down their credit card debt.
3. Getting Rid of Over the Limit Fees
One of the things the Credit CARD Act did was get rid of over the limit fees altogether. Unless the consumer has given the creditor permission to charge above and beyond the credit limit, the card issuer can no longer charge over the limit fees. So, if the creditor allows an over the limit charge, it is considered the problem of the creditor, and no over the limit fees can be charged. Gallegos says that only one percent of accounts incur over the limit fees since the enactment of the law.
4. Better Awareness of Credit Card Costs
There are hopes that better education will lead to better choices, and seems to be working. “Surveys suggest that one-third of households are paying down balances faster now,” says Gallegos. Now that credit card issuers have to show consumers how long it will take to pay off their debt — and illustrate how much they can save by paying it off faster — many consumers are taking action and paying down their debts at a faster rate. Fewer consumers are just paying the minimum now.
Problems with the CARD Act
Gallegos does say that the CARD Act has negatively impacted some people. Some consumers have less access to credit as a result. This made it harder for stay at home partners to qualify for credit, although the CFPB has been working to change that. Additionally, applicants under the age of 21 face more scrutiny.
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