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 in 2009. Last year, 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.
On Sunday, 15 months since the bill was signed, the last set of reforms go into effect including:
Requiring penalty fees for such things as late payments to be reasonable and proportional
Requiring credit card companies, if they raise your interest rate, to re-evaluate that rate increase every 6 months and, if appropriate, reduce that rate within 45 days after completing the evaluation
The reforms in the Credit CARD Act will protect 91 million households from excessive fees, unfair interest rate hikes, and arbitrary agreements that credit card companies revise at will. A recent report from the Pew Charitable Trusts found:
While its been less than a year since passage of the Credit CARD Act, the new law appears to be working for millions of Americans who have credit cards. The elimination of most of the 'unfair' or 'deceptive' practices of the credit industry since we last surveyed the marketplace marks a major milestone in the move to make credit cards safer, transparent and more fair for consumers.
And an analysis by USA TODAY found the reforms will save Americans $5 billion in bank fees this year alone:
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.
We're one step closer to an American financial system that works for all Americans.