CARD Act Aims To Finally Protect Consumers

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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Author Info

This post was written by David Dierking. David lives outside Milwaukee, Wisconsin and has been working in the financial services industry for over 13 years with a background in investments, accounting, and marketing. He earned his Chartered Financial Analyst designation from the CFA Institute in 2004 and was recently published in the Milwaukee Business Journal. You can also check him out at The Ultimate Fit Challenge

2 Responses to “CARD Act Aims To Finally Protect Consumers”

  1. Credit Card Chaser |  Feb 24, 2010 at 10:33 pm

    Also check out this 5,000 word guide to the CARD Act with a short “In a Nutshell” synopsis of each major change:

  2. responsible_consumer |  Feb 28, 2010 at 11:06 pm

    How is this a positive step for the credit card industry or consumers. Those of us with high credit scores who have been responsible and pay off our bills every month have not surprisingly been greeted with new terms which include annual fees on our previously free credit cards. We will close these cards and the quality of credit holders will get weaker. This deterioration will likely cause further delay in banks freely lending to small business. This also hurts those whinny folks who should not have been given credit in the first place. Now they have new fees which they likely will be hard pressed to pay. And it does not resolve their biggest complaints that they were charged those overlimit fees or their rate increased to 25% because they failed to pay the minimum fifty bucks or whatever when it was due. The only thing they get is the lowest rate pays off first rule. That is the one despicable practice by some credit providers that needed to be fixed. But for the cherry on top for us all, how about the fact that anyone with vendor access to the credit bureaus will be able to pull up not only your credit but also your income data. Good luck getting ahead by negotiating a big increase with that next prospective employer. They will already know what you make. Now that is a positive step for consumers everywhere and overall economic growth. Whats next, the IRS protecting consumers by opening tax return data to anyone with a web browser.

    My guess is this new positive step will have results like the last big act designed to protect innocent consumers. That would be the government required truth in lending statement provided to prospective mortage holders. Oh how that has worked out. Me and a lot of other responsible people lost a lot of money in our retirement plans because of the sorry people who could not understand this one page or simply lied in the pursuit to become homeowners. To top it off, they likely reorganized their existing debt by rolling it into their mortgage. When it did not work out, they cried to the press and government about how they were misled and cheated. Then they either walked away or filed bankruptcy. This lowered mine and others home values. It was not the financial institutions fault. It was the government which told Fannie and Freddie that they must back these bad mortgages. It was state regulators that allowed insurance companies like AIG to insure bad Freddie and Fannie securitized paper. But most of all, it was those sad foolish people who thought that a house could become a piggy bank.

    There is a bright side to all this government action. This reckless behavior by uninformed consumers who need government protection has helped to create a generational situation for those of us who kept extra cash available to ride the next wave of the financial markets as either interest rates hit Jimmy Carter levels or the government deadlocks and lets us recover from this mess. Either way, just like afer the savings and loan crisis there will be a lot of high return money to be made. Savvy people have already had the opportunity to pick up bank and big industrial stocks at prices not seen for decades.