Consumer Financial Protection Bureau Finds CARD Act Working

Tuesday, October 8th, 2013

The Consumer Financial Protection Bureau (CFPB) has came out with a report detailing the successes and failures of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) in relation to credit-card customers.

The report found that penalty fees have reduced, the cost of credit cards became clearer to consumers, and total cost of credit declined between 2008 and 2012. The CARD Act brought better consumer protections and fairness to the marketplace. But there are still areas of concern in the credit card market.

The CARD Act was signed into law in May 2009 which main aim was the establishing fair and transparent practices in the credit card market. A lot of changes were made to protect consumers, including new disclosure requirements design to make credit card costs clearer for consumers.

The major impact of the CARD Act is that consumers can better understand the credit card market. They can compare and shop more easily because pricing is more predictable and transparent.

According to CFPB report we can see the following changes:

–          Total cost of credit has fallen: the CFPB found that the amount (which includes all fees, interest, and finance charges) that cardholders pay for credit on their card accounts fell between 2008 and 2012. The decline in the total cost of credit has occurred because fees and rates became more transparent and consumers can understand and evaluate them more easily.

–          Over-the-limit fees have been eliminated: Before the CARD Act took effect, card issuers could charge an overlimit fee for transactions that put cardholders over their credit limit. With the law’s requirement that consumers opt-in to fees before they are allowed to exceed their credit limit, over-the-limit fees have become much rarer.

–          Late payment fees have declined: the report found that the average size of late fees dropped. The CFPB estimates that the average late fee went down by $6 after the CARD Act took effect. Also, the percentage of accounts incurring late fees has dropped in 2012.

–          Credit card agreements have got easier to read: The CARD Act sought to make credit disclosures shorter and easier to understand, providing realistic examples that would show the impact of certain decisions on how much customers would pay for their credit. That worked and the CFPB found that an average credit-card agreement have got shorter, easier to understand, and more readable.

–          Fewer young consumers are getting credit cards they cannot afford: before the CARD Act, it was often too easy for young consumers to obtain a credit card without any income to support payments, which resulted in damaged credit rating. Now, young consumers cannot get a credit card unless they demonstrate an independent ability to repay the debt or unless they obtain a cosigner.

The CARD Act’s success doesn’t mean you shouldn’t be careful in managing and tracking your credit card accounts. If you want to avoid fees, you should always be on guard. The issuing banks are still looking for ways to make money from their cards. Stay watchful and make sure you do not fall into any unexpected fee traps.

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