A Look at Regulation in the Credit Card Industry

The Credit Card Accountability, Responsibility and Disclosure Act, (CARD Act) is now one year old, and the Consumer Financial Protection Bureau released data showing its impact on the credit card industry as it prepares to begin its role as regulator of consumer financial products later this year.

This data showed that credit card late fees dropped from $901 million in January 2010 to to $427 million in November 2010, due to a cap of $25 on the first late fee on an account and $35 for a second late fee within six months of the first offense, and  the number of accounts that were charged late fees dropped by 30%.

Also, the number of accounts that were impacted by an interest rate increase dropped from 15% a year to 2% in the year after the new regulations took effect.

The final change mentioned by the agency was a regulation that prevents credit card issuers from penalizing cardholders for going over the card’s limit, unless the cardholder requests that these charges be accepted.  As a result of this change, many credit card issuers have eliminated over the limit fees that were charged if a transaction pushed an account over its limit.  These fees were as high as $39 before the new rules were put in place.

However, not all of the changes that have taken place since the enactment of the CARD Act have been positive.  Banks have cut perks and added many fees in an attempt to make up the lost revenue, such as application fees, annual fees, inactivity fees, increased balance transfer fees, and even fees for receiving a statement by mail.

Another negative for consumers is that credit card interest rates have risen from 13.26% to 14.27%, making it more difficult to find a low rate credit card, and the amount of available credit has dropped from over $4,400 to $3,900 on the average account, which can hurt those with a high utilization or those who need to apply for a new card.

Overall, the act seems to have accomplished its goals of providing consumers with more information about the cost of credit and the consequences of carrying a balance and protecting cardholders from predatory practices by issuers, but that protection has come at a cost, especially to those with poor credit or lower incomes who have been effectively shut out of the credit market, leaving the results of this regulation mixed at best.

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