The American Bankers Association said on Wednesday that while the 2009 Credit CARD Act has provided consumers greater protection, the legislation has also come with unintended consequences, leading to higher interest rates and reduced credit access.
“Regulatory limits on banks’ ability to manage risk have created a roadblock for people who are new to credit or who have struggled in the past and want a second chance,” ABA Chief Counsel Kenneth Clayton said. “This has a significant, real-world impact not only on those consumers, but also on the broader economy.”
Data released by the ABA last month showed that the amount cardholders pay to use credit cards has decreased, as consumers change their spending behavior and the risk shifts away from higher accounts. The effective finance charge yield—or interest charged to accounts as a percent of outstanding balances—fell from 12.65 percent in 2008 to 11.25 percent in the first quarter of the year.
The data also showed a contraction in credit card credit availability during the recession, when it fell by nearly 19 percent in 2009. Total credit lines have continued to decrease, while business and auto loans have risen 28.4 percent and 14.5 percent, respectively, over the past two years. Credit card credit and mortgages have contracted 8.4 percent and 7.2 percent, respectively.
The ABA pointed to the CARD Act’s impact on the availability of credit cards, voicing concern over the CFPB’s “hesitation to recognize that policy decisions…have unintended consequences for consumers.”
“We urge the CFPB to be sensitive to potential negative consequences that future regulatory initiatives – like the CARD Act that came before them – could have on the hundreds of millions of consumers who enjoy the many benefits that come with their credit cards,” the ABA said.