3rd Anniversary of the Credit CARD Act
Last week quietly marked the 3rd anniversary of the passage of the Credit CARD Act of 2009. This law reformed the credit card industry and prohibited most unfair practices. New consumer protections and disclosure from this law finally gave a break to consumers struggling with credit card debt.
Threats & Intimidation
When it became obvious this law would pass, the banking industry spread dire predictions that interest rates would rise and credit would dry up for consumers. Banks did raise credit card rates before the law took effect, but the rates are now locked in for consumers who pay on time. There are some people who have a harder time getting credit, such as non-working spouses and students under the age of 21, but credit seems widely available to most consumers.
From what I have seen, everyone from AAA to Walmart is still pushing their credit cards like crazy. There is just so much profit in credit cards that banks and retail stores can’t resist. For all of the threats from banks and bankers, they are just too greedy to dry up credit for the masses. Since they can no longer fee consumers to death, they are back to making money the old-fashioned way, by lending money.
Consumer Protections
Arbitrary Rate Increases
- Prohibits Any Time for Any Reason rate increases
- Prohibits Universal Default (from other late payments)
Calculation Scams
- Prohibits Double-Cycle Billing
- Payments are applied to highest rate balances first
Due Date Gimmicks
- Statements must be mailed 21 days before due date
- Payments must be accepted until 5 PM on due date
- Due date is the same day or later each month
Credit Card Limits
- Consumers can select and fix their own credit limit
- No over-limit fees above the consumers selected limit
- Limits the number of over-the-limit fees per billing cycle
Vulnerable Creditors
- Discourages credit card recruiting on college campuses
- Creditors under 21 must have a co-signer or means to pay
- Prohibits gifts, such as a free pizza, to sign up for a credit card
- Caps the upfront fees on cards for sub-prime borrowers
Undermining Reform
Bankers aren’t happy about the billions of dollars they are losing because of the recent reforms. Between credit cards, overdraft and derivatives, they are losing a lot of easy money. It’s no big secret they are funneling millions into the upcoming elections to try to reverse these reforms. If they succeed, consumers will pay the price in the form of higher fees and interest rates.
The Bottom Line
The bottom line is that banking reform has been good for consumers and bad for the banker’s bottom line. Don’t take these new protections for granted or they will soon disappear.
“We had been disappointed with a number of legislative outcomes with the past Congress, and so we look forward to better outcomes with this Congress.”
Peter Garuccio – American Bankers Association
Recommended Reading
Bruce Bucks – Don’t Chase Money
Consumerism Commentary – Were the Recession Era Bail-Outs Worthwhile?
Don’t Quit Your Day Job – How do you know you are Ready for Active Investing?
This post was featured on the Carnival of Personal Finance over at Thirty Six Months. If you aren’t familiar with the Carnival of Personal Finance, you need to check it out. It’s the best place on the web to get your financial advice.
Pretty tough for me to feel a lot of sympathy for credit card issuers. Based on the stampede into the business over the past couple of decades and the explosion of credit availability, I’d guess issuing credit cards is a highly profitable business. I like capitalism generally, but unfettered capitalism inevitably leads to abuse. The Credit CARD Act, while not perfect (of course), accomplished some needed ‘fettering’ of the banks and other card issuers.
Hi Kurt,
Banks were basically getting away with murder before most of the latest reforms. They seem pretty confident they are going to repeal these laws and get back to the old fees and dirty tricks. For the sake of consumers, I sure hope not.
Bret, thanks for the link!
Don’t forget the debit card interchange changes. The profit was capped at something like 21 cents and a varied fee in the so-called ‘Durbin Amendment’. The era of big profits from retail banking is probably near an end – although there are a bunch more charges to be mindful of.
Thanks for reminding me Paul.
The Debit Interchange reform was another win for consumers and retailers. It was an unfair monopoly that needed reform. Bankers were really upset they weren’t allowed to set thier own prices on Interchange Fees. They fough it tooth-and-nail, but ultimately lost. They sure would like to get those billions back.