Before the Credit CARD Act — designed to protect borrowers from unfair credit-card practices — banks could charge high fees to cardholders who went over their limit, apply payments in a way that maximized their profits, and raise interest rates whenever they pleased.
These practices were outlawed in 2009, along with a host of others that cost consumers big money. Many of the new rules went into effect last February. One year later, are credit-card users better off? Yes, say most consumer advocates:
• INTEREST RATES: Thanks to the act, banks can no longer raise interest rates on already-borrowed money in most instances, a major victory for consumers, said Linda Sherry, a credit-card expert from Consumer Action. Banks must also give consumers 45 days notice before implementing major changes to card terms.
Have interest rates risen? That’s the consensus. But a Center for Responsible Lending study released recently found rates have held steady since the act.
• ACCESS TO CREDIT: Many banks adjusted to the tougher financial times and the new law by cutting card limits, closing accounts and offering credit only to less-risky customers.
Credit-card offers are starting to fill mailboxes again, according to the research firm Synovate, which tracks card mailings. Yet they’re still below the numbers sent before the Great Recession and CARD Act, and very few are going to households with FICO credit scores below 620.
• CLEARER TERMS: No more guessing how much your card balance will cost you over time. Now banks must show how much that cup of coffee will cost you if you only make the minimum payment.
• FEES: The CARD Act caps some penalty fees. For example, the first late fee is capped at $25, far less than the $39 fees once levied by some credit-card issuers.
The new law also requires banks to get permission from customers before approving over-the-limit transactions.
Much was written about how these restrictions would cost the banks billions in lost fee revenue, forcing them to use new fees to make up lost profits. But Anuj Shahani, a director at Synovate, said that hasn’t come to pass.
“I think high competition among the issuers has restricted the cost add-ons to be passed to the consumer entirely,” he said.
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