Published February 23, 2012
Back in 2009, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act was signed to great fanfare, with the White House lauding it as a "turning point for American consumers." The question is, which way have things turned for consumers? By at least one measure, the CARD Act may have been a multi-billion dollar turn in the wrong direction.
The CARD Act was implemented on Feb. 22, 2010, and the two-year anniversary of this date marks a fair time to assess the Act's successes, failures, and overall implications for consumers with credit cards.
Counting the costs of the CARD Act
Though the CARD Act did not take effect until February 2010, it had been signed by President Obama nine months earlier, and discussed openly for months before that. In the interim, there was a flurry of activity among credit card companies as they adjusted their rates and fees presumably in anticipation of the new law.
So, to get a true reading on the impact of this law, it was necessary to go back to late 2008 for a look at how things were before anticipation of the CARD Act started to change things. To do this, CardRatings.com compared terms on roughly 500 credit card offers from late 2008 and late 2011, and found the following impacts that may be attributed to the CARD Act:
Can all of these costs be blamed on the CARD Act? Given the aftermath of the 2008 credit crunch and the significant market changes as a result (including credit card companies reducing credit lines or cancelling cards outright in order to manage their risk), it's impossible to be certain. But as the most significant change in the industry between the two time periods that were compared, the CARD Act seems to bear much of the responsibility.
Considering the benefits
At the same time, there have been some benefits to the CARD Act:
Advocates of the CARD Act would claim one other benefit: that the law has limited the circumstances under which interest rates can be raised in reaction to economic events, your payment history and your changing credit status. However, if credit card companies have responded by raising rates in advance and across the board, it hardly seems that consumers are better off.
Shifting the burden among credit card holders
At this point, it is impossible to tell how much the lower fees in some areas are counteracted by higher fees in others as a result of the CARD Act, but the 800-pound gorilla in the discussion is the $16.8-billion potential added annual cost due to higher interest rates.
Besides the likelihood of a higher overall cost, one thing the CARD Act has clearly done is shift the way the cost burden is distributed among credit card holders. By protecting cardholders who are late with payments or have credit problems, the CARD Act seems to have caused cardholders in general, including customers with excellent credit, to pay higher interest rates.
But wait, there's more. The implications of the CARD Act go beyond the reach of that particular law. The CARD Act was followed a year later by the Dodd-Frank financial reforms, which included a variety of regulations addressing checking account fees. The similarity is that both have produced some unintended consequences. The consistent theme is that when regulators try to micro-manage the banking business to benefit certain customers, the outcome seems to be higher costs for everyone.
The original article can be found at CardRatings.com:
CARD Act may have cost consumers billions