Credit card issuers have been adjusting to a major overhaul of their industry

The Credit Card Accountability, Responsibility and Disclosure Act

February 22, 2011|By Eileen Ambrose, The Baltimore Sun

Congress gave credit cards a much-needed overhaul, aimed at ending some of the industry's worst practices and providing consumers with more information about the plastic in their pockets.

One year later, the new Consumer Financial Protection Bureau is bringing together industry insiders, consumer advocates and academics today to determine whether it worked. And it's likely to get a mixed earful. Consumer advocates give the law a thumbs up, while industry experts say it has contributed to a bump up in interest rates on cards and less available credit for high-risk consumers.

The Credit Card Accountability, Responsibility and Disclosure Act was signed into law in 2009, but the bulk of the reforms kicked in last year. Among the many changes: Card issuers are restricted on when they can raise interest rates. Rate increases can be applied only to new balances, not old charges. Issuers must give customers 45 days' notice when making major term changes so they have enough time to shop around. Late fees are capped.

If phone calls to U.S. Public Interest Research Group in Washington are any gauge, consumers are more content with their cards than in years past. The consumer advocacy group is getting few complaints these days.

"It's working very well," says Ed Mierzwinski, a program director with U.S. PIRG. "Rates are now transparent, and people can understand them. And there are fewer 'gotcha' fees."

Greg McBride, senior financial analyst with, says the law has lots of consumer-friendly provisions, "but there have been some consequences."

Issuers generally cannot raise customers' rates unless they are 60 days behind on payments, but by then the customer is less likely to pay at all, he says. In response, many issuers have raised interest rates across the board and lowered credit limits. Rates are about 2 percentage points higher than a year ago, he says.

Oliver Ireland, a Washington lawyer who represents credit card issuers and will be a speaker at the bureau's meeting today, says the economy has had an had an impact on the industry, but the CARD Act also has put pressure on companies' revenue.

"The process is like squeezing a balloon. You cut back revenue in some places, and they will have to make up for it someplace else," Ireland says.

As a result, customers with good credit scores have seen their interest rates tick up and high-risk consumers have found it harder to get credit, he says. And issuers are adding annual fees.

But Josh Frank, senior researcher with the Center for Responsible Lending, says the CARD Act has made pricing more transparent and rates have actually remained steady in the past year.

Before the act, card issuers were free to raise rates anytime, so the rate you paid could be nearly 2 percentage points higher than the initial offer, says Frank, who released a report last week on the law's impact. Thanks to the law, the offer rate now is similar to the rate you will be charged, he says.

"The true price of credit did not go up. It just became more clear," he says.

Frank says some of the changes consumers see now are because of the weak economy, not the law. Issuers, for instance, cut back on card offers before the CARD Act because of the high default rates during the recession.

Curtis Arnold, founder of the card comparison website, says he's noticed that rates have been dropping in some cases and that card offers have been going up for all but the riskiest borrowers.

He adds that one of the best things to come from the CARD Act is a more knowledgeable consumer. The law has made "more consumers aware of the credit card fine print and traps they can fall into," he says.

CARD Act highlights

•Customers must get at least 21 days to pay monthly bills.

•Consumers must opt-in for over-the-limit fees.

•Caps on late fees.

•Card issuers can't increase rates in the first year after the card is opened. Promotional rates, however, can end after six months.

•Customers must get 45 days' notice of major changes in card terms.

•Consumers can't be charged inactivity fees.

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