The Credit Card Accountability Responsibility and Disclosure Act of 2009 — better known as the Credit CARD Act — was the greatest credit card overhaul in U.S. history. The CARD Act, a response to consumer lending practices following the financial crisis, was designed to curb excessive banking fees and interest rates. The Act was passed in 2009 but went into effect at the start of 2010. the Consumer Financial Protection Bureau (or CFPB) took responsibility for the law in 2011 and began tracking credit card data.
Last week, the CFPB released a report showing just how much credit card regulations have saved consumers.
According to the CFPB, the CARD Act has saved consumers a total of $20 billion from 2011 to 2014. This breaks down to consumers saving the following amounts:
- $9 billion in overlimit fees
- $7 billion in late fees
- $4 billion in other fees like balance transfer fees and foreign transaction fees.
Here’s more insights into how the savings break down and how you benefit.
Overlimit Fees: $9 Billion in Savings
The CARD Act legislation made overlimit fees “all but extinct,” according to the CFPB report.
Under the CARD Act, cardholders cannot be charged an overlimit fee unless they choose to allow their creditor to approve and process overlimit transactions. When the consumer does opt for overlimit transactions, issuers may not charge more than 1 overlimit fee per billing cycle.
If overlimit fees had remained at their 2008 level, consumers would have paid more than $9 billion between 2011 and 2014.
Late Fees: $7 Billion in Savings
The CARD Act saves consumers money on late fees in two ways:
- First, it prohibits late fees, if payments are received during the business day of the due date.
- Second, average late fees were voluntarily reduced after the CARD Act went into effect.
In the past, many card issuers set a cut-off time of 11:00 am Eastern Time, for example. This meant any payments received on the due date after this time resulted in a hefty late payment.
The CFPB report found that late fees have gone down by 20% since the CARD Act was passed.
Before the CARD Act, average late fees were on the rise and had reached $35. After the CARD Act went into effect, the average late fee was voluntarily reduced to just $23. This average recently increased slightly to $27.
If late fees had remained at their pre-CARD Act level, consumers would have paid more than $7 billion during the four-year timespan.
Miscellaneous Fees: $4 Billion in Savings
The CARD Act also dramatically reduced and eliminated many other fees.
These other fees may include cash advance fees, balance transfer fees, foreign transaction fees, and add-on fees like a charge to pay the bill online or over the phone.
As you may be aware, many of these fees are still around, and the CARD Act merely required better disclosures in most cases — and not elimination. However, more and more cards eliminated one or more of them to better induce new customer sign ups.
In fact, the CFPB report says that this claimed savings in fees is mostly attributed to the elimination of add-on fees for debt cancellation and suspension.
Any Negatives to the CARD Act?
It’s important to note that the banking industry warned in 2009 and 2010 that eliminating these fees would reduce credit availability. The CFPB says there isn’t any evidence this has actually happened.
There were more than 100 million new credit card accounts opened in 2014, and credit card growth is at nearly 3% a year. Since 2010, the amount of available credit has grown 10%. These are very strong growth numbers for what many consider a mature industry.
Along with saving money on fees, the report found that the cost of credit — which includes finance charges and fees — is down 2% since the CARD Act went into effect.
There Are Still Gotchas
While the CARD Act undoubtedly improved the quality of disclosures and overall card card landscape for consumers, there are still “gotchas” for unwary consumers.
The CFPB warned of a few issues that can still hit consumers with high costs.
Deferred-interest promotions can be sneaky and expensive.
Deferred-interest promotions are common on store credit cards. At first glance, it seems like a great deal: you finance a major purchase — such as a laptop or a refrigerator — at 0% for 6-12 months. But what happens when the promotion term ends?
Unlike credit cards with 0% introductory APRs, which only begin charging interest on a balance when the promotional period expires, a purchase under a deferred-interest promotion will still accumulate interest charges.
While the interest isn’t charged yet, the card issuer keeps track. If you fail to pay off the balance in full by the end of the promotion, you will be charged interest dating back to the purchase as if there was never a promotion at all.
If you see a 0% financing offer by a retailer, there’s a good chance you will be signing up for a deferred-interest promotion. If you’re sure you can pay the balance in full before the promotion ends and you keep track of the end date, this can still be a great deal.
Rewards Programs are Not Transparent
The CFPB report also pointed out that most credit card rewards programs are unclear to consumers who are applying for a card.
While more than half of consumers say they choose credit cards based on the rewards, surveys find that consumers often do not know the details of the reward program until they have already submitted the application.
While some card issuers do make the terms of their reward programs available to consumers before applying, the terms and conditions can be obscure or incomplete. The details of reward programs are also subject to change at any time.
The Bottom Line
The bottom line is that the CARD Act dramatically improved credit card disclosures and ended some abusive behavior by card issuers (both statutorily and voluntarily). Unfortunately, we suspect some of these voluntary changes (such as reduced late fees) may reverse course the next time consumers go throw a cycle of reducing spending and debt.
Overall, this legislation has been a net positive for consumers – both in terms of (1) savings on reduced fees and costs and (2) providing a better understating of card terms and conditions. We only wish even more consumers took the time to better understand the costs and benefits their cards offered to avoid any nast surprises.