In 2008, credit card issuers imposed $19 billion in penalty fees on families with credit cards–exploiting loopholes in the law to make profits at the expense of responsible credit cardholders with minimal oversight. Last year, credit card companies broke all records for late fees, over-limit charges, and other penalties. Credit card debt also reached a record high of nearly $1 trillion at the end of 2008–with around half of American families carrying an unpaid balance last year. Last May, the House passed, and the President signed, the Credit Cardholders' Bill of Rights (or Credit CARD Act) applying common-sense regulations that ban unfair rate increases and forbid abusive fees and penalties.
The Credit CARD Act contained three separate implementation dates (90 days, 9 months and 15 months after the bill was signed). The first set of consumer protections went into effect last August–requiring 45 days advance notice of all interest rate and fee hikes and statements be mailed 21 days in advance of payment due dates. In February, a second set of reforms went into effect, including prohibiting arbitrary interest rate increases and prohibiting interest charges on debt paid on time (double-cycle billing ban). The bill also put an end to the industry practices dominated by incomprehensible fine print, calling for transparency and clarity in statements–including requiring credit card issuers to disclose how long it will take to pay off the balance if only the minimum monthly payments are paid.
Over the weekend, the Associated Press reported we’re already starting to see positive results from the CARD Act:
Consumers struggling to pay their bills in the first few months of the year got an immediate benefit from credit card reforms.
Late credit card payments fell sharply in the first quarter, and at least part of the drop can be attributed to the law that kicked in Feb. 22 curbing interest rate hikes and various fees.
The rate of borrowers who fell 90 days or more behind on their cards dropped to 1.11 percent for the first quarter, down from 1.32 percent in the 2009 period, according to credit reporting agency TransUnion. The delinquency rate was also down from the fourth-quarter of 2009, when it stood at 1.21 percent…
Average credit card debt also fell in the first quarter, to $5,165. That’s down 10.6 percent from $5,776 at the start of last year. Continue reading»
Although a lot of this good news can be attributed to consumers who are budgeting better and spending less, an executive at the credit report agency TransUnion told the AP that the reforms have also helped. Since banks can no longer raise a customer’s interest rate without warning, and since there are now limits on penalty fees, they haven’t been able to inflate balances as quickly as in the past. That in turn has led to lower minimum payments.
The reforms in the Credit CARD Act, including the remaining provisions set to take effect this August (such as that creditors periodically review all interest rate increases since January 2009 and reduce rates when a review indicates that a reduction is warranted), will protect 91 million households from excessive fees, unfair interest rate hikes, and arbitrary agreements that credit card companies revise at will. We’re one step closer to an American financial system that works for all Americans.
UPDATE: A new analysis by USA TODAY discusses how the reforms will also cut bank fees for consumers:
New credit card and overdraft restrictions will save U.S. consumers from being charged at least $5 billion in fees this year alone at the largest U.S. retail banks and credit card companies.
The analysis — based on institutions’ own estimates — comes during a year when new rules are kicking in to address unfair credit card rate increases and steep bank overdraft fees. It highlights the sizable dent these rules will have on an industry blamed for pushing consumers deeper into distress during the recession.
…new data show the measures are their “own little stimulus for the economy, keeping billions in the pockets of consumers rather than in profits gained from deceptive practices,” says Rep. Carolyn Maloney, D-N.Y., co-author of card reform signed into law last year.
Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, U.S. Bancorp, HSBC North America and Barclays Group US — will forgo at least $2.5 billion to $3.1 billion in fees just in 2010. Also, seven of the top 10 depositary institutions expect to take a combined $2.4 to $2.6 billion hit under the new overdraft rules and banks’ voluntary policy changes.