Credit Card Act cracks down on industry abuses, but new reforms needed

This year marks the fifth anniversary of the Credit Card Act, a federal law that’s made a real difference in protecting consumers from some of the worst abuses by credit-card companies. After years of complaints about hidden fees, surprise rate hikes, and other unfair practices, the law made sweeping changes in how credit-card issuers treat their customers.

Today, thanks to the Card Act—officially the Credit Card Accountability Responsibility and Disclosure Act—the cost of penalty fees has gone down. Card issuers can no longer retroactively raise your interest rate on an existing balance. You must be asked to opt in before you are allowed to go over your credit limit, which has virtually eliminated “overlimit” fees from the marketplace.

Before the Card Act, it was too easy for young consumers to get their hands on plastic and subsequently rack up debt and damage their credit. Now, those under 21 years old can’t get a credit card unless they can show they’re able to repay the debt or have a co-signer who’s 21 or over.

Plus, monthly statements must tell you how long it would take and how much it would cost to pay off the full balance if you make only the minimum payment.

Consumers Union, the policy and advocacy arm of Consumer Reports, worked hard alongside other groups to get the Card Act passed by Congress. We brought consumers to Capitol Hill to tell their stories of abuses by the credit-card industry, and our advocates were on hand to see President Obama sign the Act into law in May 2009. We believe it’s one of the most important pro-consumer laws in many years.

Still, some credit-card-industry products and practices need attention. That’s why we’re asking regulators to build on the success of the law with more improvements for cardholders.

In a recent letter to Richard Cordray, the head of the Consumer Financial Protection Bureau, we called for a number of reforms, including:

Banning deferred-interest credit cards, which can be dangerous debt traps. Short of that, the CFPB should improve standards so issuers of deferred-interest cards must assess the consumers’ ability to pay off the cards.
Extending consumer protections to prepaid cards, which look like credit or debit cards but typically don’t have the same level of protection. We want payment-card parity so that every way to pay is safe.
Continuing to crack down on deceptive practices by companies. The government has taken enforcement actions against credit-card companies for evading or violating the Card Act.
Reducing credit-card fees even more, placing caps on penalty interest rates, and making it easier for consumers to earn their way out of penalty rates.

Under the Card Act, you’re less likely to be tripped up by industry tricks and traps. But there continue to be gaps in protection and we’ll keep working to fill those gaps and provide greater protection for all.

This feature is part of a regular series by Consumers Union, the policy and advocacy arm of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.

Read other installments of our Policy & Action feature.