Credit Card Regulation–a Debate

Back before the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 was passed, consumer groups and financial industry lobbyists disagreed about the new law’s likely outcomes. Those on the industry side argued that the legislation would dam many of the companies’ revenue streams and force them to increase credit card rates and extend annual fees.

And, of course, to some extent they were right. However, a new report, published today by Pew Trusts, suggests that many of the more apocalyptic predictions have not come to pass. Overall, the impact of the new credit card regulation structure has been positive.

Credit Card Rates

Pew says that advertised credit card rates for people with good credit scores have risen since the law was passed, but that the rate of increase has recently declined. Between December 2008 and July 2009, they jumped 23 percent, but between July 2009 and March 2010 they climbed by only six percent.

Those trends were reversed for people with poor credit scores, with rates increasing by 13 percent in that first period and 17 percent in the second.

It’s difficult to assess how much of these rate increases is a result of the Credit CARD Act, and how much is a response to the losses that credit card companies sustained as a result of the economic downturn.

Credit Card Fees

The story for credit card fees is also mixed, according to Pew. For example, fewer (yes, fewer) cards issued by banks had annual fees in March 2010 (14 percent) than in July 2009 (15 percent), but those that did have fees charged nearly 20 percent more.

Meanwhile, overlimit fees fell away dramatically. Back in July 2009, 80 percent of the credit cards that Pew surveyed carried these fees, but that number had dropped to 25 percent by March 2010. The average amount charged for overlimit and late payment penalties ($39) has remained unchanged, but is expected to drop by August when new Federal Reserve regulations that limit them come into effect.

Balance Transfer Credit Cards

By 2009, Pew says, 88 percent of the balance transfer credit cards it surveyed charged fees for those transfers. In March 2010, 10 of the 12 largest bank-owned credit card companies were charging such fees on 94 percent of their cards. And almost all of the companies that levied a fee imposed a minimum amount.

The rate at which balance transfer fees were levied also rose, from a median of three percent in July 2009 to four percent by March this year. Of course, the fact that those are “medians” means that some are lower and some are higher.

Credit Card Regulation–Pew’s Conclusions

The Pew report’s opening paragraph includes a couple of sentences that pretty much sum up its conclusions:

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 was intended to create a fairer and more transparent marketplace, and initial indicators suggest that it is meeting its goals. One recent survey showed that nearly three in four American credit card holders agreed that their accounts are better off today than they were prior to passage of the new law.

Published 07/22/10 (Modified 07/09/14)