CARD Act Aims To Finally Protect Consumers
By David Dierking
Last year, President Obama finally pushed legislation through Congress that is aimed at protecting American consumers from the unscrupulous practices of credit card companies. This week, the new credit card law finally takes effect.
On Monday, February 22nd, the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act, for short) begins guarding credit card users from many of the common complaints levied against card companies such as being unfairly dinged with rate increases or charged exorbitant fees. It’s not a complete solution and there will be negatives for some cardholders but all in all this piece of legislation is a step in the right direction.
Consumers will immediately see a number of changes to their card agreements. The biggest change may come from card companies’ inability to make unannounced rate hikes. Issuers will no longer be able to make major rate increases on outstanding card balances and, additionally, must provide 45 days notice before making any type of significant change to your account. That includes increasing the rates on your line of credit, imposing additional fees to your account or changing the terms of the cardholder agreement. These changes are a big win for individuals who carry a credit card balance.
But not every practice has been reformed. There are some things that card issuers can still do. For example, there’s no cap on the interest rate charged to new customers (First Premier Bank made news recently with a 79.9% APR on its Premier Bankcard). Card issuers are also still allowed to reduce your credit line or close your account altogether without any type of notice. This has already taken place for many consumers and can be expected to continue.
So who comes out on the losing end with the CARD Act? That would be consumers who pay off their credit cards on time every month. Sounds a little unfair, right? People who pay off their full balance every month don’t incur late fees or interest charges in the first place so any rate changes associated with their cards are going to go largely unnoticed.
But credit card companies will be looking for ways to replace the lost revenue that came from fee and interest income. That lost revenue could be recovered in the form of higher annual fees, increased inactivity fees and lower rewards program benefits. It turns out that those who manage their credit card debt the best will be the ones who benefit the least. No good deed goes unpunished I suppose.
Let’s focus on the good though. Overall, the CARD Act is a positive step for the credit card industry. It won’t prevent every abusive practice but it undoubtedly puts consumers in a more advantageous position than they were in previously. Analysts have already been keeping an eye on card issuers to see if and to what degree they may try to find ways to circumvent the new law to their advantage. Many big issuers seem to be ready to comply with the spirit of the law but there will be others out there that will try to skirt the rules. Be sure to keep a close eye on your cardholder agreement to see exactly what your card issuer will and will not do.
And this isn’t an invitation to spend freely without consequence. If you pay late or pay less than the entire balance, you’ll still incur fees and interest charges. There’s no law that will protect you from that but for those of you who have gotten dinged from a card issuer in the past, the gray skies should be lifting this week.
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