The Credit CARD Act Turns One

by Member Access Pacific

One year ago the epic Credit CARD Act took effect, which aimed to reform the entire credit card industry and help young people under age 21 steer clear of credit card dangers. While some are calling the law a success for consumers, others think the celebration is a bit overdone.

The Center for Responsible Lending recently released a study declaring the Credit CARD Act an unqualified success, claiming it “reversed much of the unclear pricing on credit cards, without leading to higher rates or more difficulty in getting credit.” According to the Center for Responsible Lending, “an estimated $12.1 billion in previously obscure yearly charges are now stated more clearly in credit card offers.”

On the other side, the credit card industry would argue that the increase in interest rates was due to the CARD Act and more rules and regulation.

“Whether you look at it intuitively or statistically, it is obvious that the CARD Act has neither increased interest rates nor limited consumers’ access to credit,” said Odysseas Papadimitriou, CEO.

Interest rates on credit cards have increased according to the Federal Reserve. Interest rates on credit cards toward the end of 2010 on average were 13.44 percent, compared to about 12.08 percent in 2008. However, according to a study from, the rise in interest rates was due to the unstable economy and not the CARD Act. Even Elizabeth Warren of the Consumer Financial Protection Bureau agrees that the CARD Act is not without negative consequences, recently telling a Bloomberg reporter, “We can probably agree that this approach—write a rule, avoid a rule, write another rule—is costly for consumers and the industry. Because it multiplies the number and complexity of rules, this approach creates special challenges for those smaller banks and credit issuers that still offer credit cards to their customers.”

The CARD Act aimed to protect students from credit card dangers by requiring those under age 21 to have a cosigner on the account and prohibiting credit card companies from sending pre-approved credit card offers to those under age 21 via mail.

According to a study released last month from the University of Houston, 76 percent of undergraduate students received credit card offers in the mail over the past year. While it’s still legal for companies to send credit card offers in the mail (pre-approved offers, however, are illegal and against the CARD Act), this study shows how willing credit card companies are to find any and all loopholes. New credit card rules mandated by the Credit CARD Act of 2009 have resulted in significantly greater price transparency for consumers. This reverses a trend of increasingly unclear pricing that for years misled consumers into believing they would pay less for credit card debt than was true. Inaccurate pricing information likely caused many borrowers to take on more credit card debt than they otherwise would have.

However, while the CARD Act is being applauded for increased transparency for consumers and special kudos for eliminating unannounced rate hikes and unreasonable overdraft fees, the regulation has been a major burden for credit unions, and will be for years before all the significant and negative “unintended consequences” are uncovered.


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Posted in Compliance News.