While consumers have saved millions of dollars in credit card fees and interest as a result of the 2009 CARD Act, they must also deal with fewer cardholder benefits and new fees.
“There are fewer traps for consumers to navigate around now,” Gerri Detweiler, the director of consumer education for Florida-based Credit.com, said, according to Cleveland.com. “The industry is more transparent. It has definitely helped people.”
In response to the 2008 financial crisis, Congress passed the Credit Card Accountability Responsibility and Disclosure Act, with many of the changes enacted by the legislation took effect February 2010. Credit card companies used to be able to charge a consumer a $39 late fee, set up a due date for a Sunday when mail is not delivered and change the due date every month. Under the CARD Act, however, such practices are prohibited.
Late fees cannot exceed $25 or be higher than the minimum payment and cannot exceed $35 for a second late payment within six months. A recent study by the OCC found that within the legislation’s first year, late fees fell from $901 million per month in January 2010 to $427 million per month by the end of 2010. The number of accounts charged a late fee also fell by 30 percent, and the average late fee fell from $35 to $23, Cleveland.com reports.
Additionally, before the law took effect, approximately 12 percent of accounts were charged an overlimit fee, a practice that was banned by the legislation but still applicable with the cardholder’s consent. The OCC found, however, that the numberfell to one percent of account owners who agreed to pay the fee if they exceed their credit card limit.
Data from the New York University School of Law revealed that banks’ revenue from fees reached $1.8 billion per month in mid-2009. After the legislation took effect in 2010, however, banks’ monthly fee revenue fell by half to less than $1 billion, according to Cleveland.com.
Jay Seaton, the president of Consumer Credit Counseling of Northeast Ohio, said that the biggest benefit resulting from the CARD Act is the mandatory payment disclosure box, which shows customers how much they will pay in interest each month if they pay only the minimum payment over the course of a certain period of time.
“It shows in black and white how much it helps to add a little bit more to your payment,” Seaton said, Cleveland.com reports. “I think people have a better understanding of how they can control how much they pay in interest. I really do think a chunk of people have changed their habits as far as debt.”
Consumers changed their debt habits, with data from the OCC revealing that outstanding credit card balances fell from $540 billion in mid-2009 to $460 billion in late 2010. Banks have, as a result, attempted to recoup the lost revenue by imposing annual fees on cardholders with B credit ratings or lower. Some banks have also reduced the perks, such as airline miles and travel rewards, offered to cardholders to offset the revenue losses.
Deitweiler said that while many companies and banks cut back on rewards programs in 2010 and 2011, rewards are back and widely available but only to the most credit-worthy customers, according to Cleveland.com.
Though companies are not permitted to raise interest rates on existing customers, many institutions have begun to increase interest rates for new customers. Bill Hardkopf, the CEO of LowCards.com, said that while the average interest rate was 11.64 percent in 2010, it has now risen to 14.35 percent.