New Credit Card Law: Basics

TWO STEPS FORWARD:
After the Credit CARD Act, Credit Cards Are Safer and More Transparent — But Challenges Remain
EXECUTIVE SUMMARY
Times have changed in the credit card industry. Our latest research confirms that many
After months of economic recession, heightened troublesome practices have disappeared
unemployment and historic legal reforms, from the market. The Credit CARD Act
credit cards today look very different than they targeted what regulators called “unfair or
did just a year or two ago. The Credit Card deceptive” practices, such as “hair trigger”
Accountability Responsibility and Disclosure penalty interest rate increases on existing
(CARD) Act of 2009 was intended to create a balances for minor account violations, unfair
fairer and more transparent marketplace, and payment allocation and imposition of overlimit
initial indicators suggest that it is meeting its fees without consent. Prior to the recent legal
goals.1 One recent survey showed that nearly reforms, Pew’s research showed that 100
three in four American credit card holders agreed percent of credit cards from the largest banks
that their accounts are better off today than included these and other practices that are now
they were prior to passage of the new law.2 banned.3 The elimination of these practices
marks a major improvement since our July 2009
To implement the Credit CARD Act, Congress data collection.
directed the Federal Reserve Board to issue
three sets of new rules. In August 2009, the Predictions that legal reform would stimulate
Federal Reserve required issuers to give consumers the growth of new fees have so far not
45 days to evaluate changes in rates or fees materialized.4 Just 14 percent of all reviewed
before those changes could apply. In February cards included an annual fee (compared to 15
2010, new rules limited issuers’ ability to raise percent in July 2009), and there was no indication
interest rates on existing balances, impose of a trend toward adding new types of fees.
penalty rates, assess overlimit fees and apply Yet the median size of annual fees grew between
payments in ways that unfairly maximized July 2009 and March 2010, rising from $50 to
finance charges. Finally, in August 2010, a new $59 for banks and from $15 to $25 for credit
set of rules will attempt to satisfy the new law’s unions. When annual fees did apply, they were
mandate that “any penalty fee or charge” must clearly listed within legally mandated pricing
be “reasonable and proportional.” disclosure tables.
This report presents findings of the Pew Health Overlimit fees and arbitration clauses
Group’s most recent assessment of the credit card have become much less common. Fewer
marketplace, based on data collected in March than 25 percent of all surveyed cards had an
2010. Like our previous publications (based on overlimit fee, down from more than 80 percent
data from December 2008 and July 2009), this of cards in July 2009. Arbitration clauses, which
report represents an analysis of prices and impair consumers’ rights to settle disputes in
practices based on a thorough review of written court, are now found in only 10 percent of
credit card application disclosures. These findings bank card disclosures, compared to 68
reflect all consumer credit cards offered online percent in July 2009. At the same time,
by the largest 12 bank and largest 12 credit advertised interest rates continued to rise
union issuers—nearly 450 credit cards in all. (see feature box).
www.pewtrusts.org/creditcards
TWO STEPS FORWARD: 5
After the Credit CARD Act, Credit Cards Are Safer and More Transparent — But Challenges Remain
INTRODUCTION
The consumer credit card market has • Additional protections for young adults
seen significant changes in recent months. must apply, including a co-signer or ability
A groundbreaking new law—the Credit Card to repay assessment.
Accountability Responsibility and Disclosure
(CARD) Act of 2009—has eliminated many The third and final set of the Credit CARD Act’s
previously common practices that were harmful restrictions, effective August 2010, will require:
to consumers. The new law succeeded in
advancing a number of consumer protection • Penalty fees and charges must be
principles, including many of those included in “reasonable and proportional” to the
Pew’s Safe Credit Card Standards.5 The Federal cardholder’s omission or violation. This will
Reserve Board is responsible for implementing include a $25 penalty fee safe harbor
the new consumer protections of the Credit guideline.
CARD Act in three stages over the course of
one year.6 • Issuers must perform a review, every six
months, of accounts that experienced
The first set of protections, effective August interest rate increases. This review should
2009, required: determine if changes in key factors (e.g.,
credit risk of the cardholder or market
• Issuers must provide 45-day advance conditions) warrant a rate reduction.
notice of interest rate increases or other
significant changes. The following pages present the most recent
data on how the credit card market has (and
• Issuers must give cardholders an opportunity has not) changed since the passage of the
to opt out of certain changes in terms by Credit CARD Act. We show the interest rates,
closing the account and paying off the fees, penalties and other important features of
remaining balance at the previous rate over credit cards as of March 2010. Consistent with
a period of time. our December 2008 and July 2009 surveys,
Pew researchers collected all online consumer
The most comprehensive set of new provisions, credit card disclosures from the largest 12 bank
effective February 2010, required: and largest 12 credit union issuers as measured
by outstanding credit card debt. Together,
• Issuers must not raise interest rates on any these issuers controlled 91 percent of credit
outstanding balance except due to (1) the card debt nationwide. There were 448 credit
end of a promotional period, (2) the action cards meeting our criteria in March 2010 (411
of a variable index rate, (3) the end of a from banks and 37 from credit unions)—13
workout agreement or (4) late payments of percent more cards than the top 12 bank and
60 days or more. top 12 credit unions offered in July 2009. A
complete explanation of methodology may
• Overlimit fees must not apply without prior be found in Appendix C.
cardholder opt-in.
Throughout the report we make comparisons
• Payments in excess of the minimum payment between bank card and credit union card data
due must be applied first to balances with as a means of demonstrating similarities and
the highest annual percentage rates. differences between the two main types of
www.pewtrusts.org/creditcards

New Credit Card Law: Basics

Uploaded by

Copyright:

Available Formats

New Credit Card Law: Basics

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

New Credit Card Law: Basics

Uploaded by

Copyright:

Available Formats

TWO STEPS FORWARD:

You might also like