CARD Act Raised Rates, Lowered Credit Access

The Credit CARD Act has caused higher interest rates and lower availability of cards -- especially for new users and people trying to re-establish their credit, the American Bankers Association said Feb. 19 in a comment letter filed with the Consumer Financial Protection Bureau.

"While the CARD Act has provided clear and significant benefits to consumers, there have also been significant tradeoffs, specifically, higher costs and less availability for credit card credit," the lobby group for banks said in the letter, signed by ABA Senior Vice President Nessa Feddis.

Those benefits include the near elimination of surprise rate hikes and a rollback of late fees and over-limit fees, the ABA said.

Enacted in May 2009, the Credit Card Accountability Responsibility and Disclosure Act's major provisions took effect Feb. 22, 2010, three years ago Friday. The consumer bureau is taking comments -- some of which contradict the ABA's findings -- for a study on the consumer protection law's results.

A pullback in subprime cards may be forcing more people into higher-cost forms of credit such as payday loans, the ABA said.

Although the financial crisis and subsequent recession also hit since the law took effect, "economic conditions alone can't explain the changes we've seen in the credit card market," ABA Chief Counsel Kenneth Clayton said in a news release that accompanied the association's filing.

Since late 2008, when lenders began anticipating the CARD Act, rates for home and auto loans have fallen sharply while credit card rates have risen about three-quarters of a percentage point, the association said, citing an analysis by Argus Information and Advisory Services.

However, other analyses show a different picture. Looking at Federal Reserve figures, a study by the Center for Responsible Lending found that card interest rates initially rose, but then returned to about pre-CARD Act levels.

In addition, mortgage rates have benefited from federal economic programs to keep rates low and bolster the housing market.

Feddis said that the wide spread between rates on card loans -- at about 14.5% for mature accounts -- and other types of consumer credit raises the question of whether the CARD Act was a factor. Auto loan rates are down about 2 percentage points and mortgages more than 2.5 points, the association said in its comment letter. Card rates should have fallen too, Feddis said, since the risk of card lending has declined as subprime customers were dropped.

So what is the CARD Act's bottom line for consumers? "It depends on who you are," Feddis said. "When their limit is lowered or their account is closed, people get very upset."

The banking group isn't arguing to roll back the law, but is recommending caution to examine unintended consequences before any further consumer protection measures, she added.