Has the Credit CARD Act of 2009 Really Protected Consumers from Unfair Credit Card Policies?

In 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure, or CARD Act, into law, helping to change the way in which credit cards were issued and processed (1). While the Credit CARD Act did help curb unscrupulous credit card issuer practices such as double cycle billing and youth marketing, other issues have still not been resolved. In fact, the Credit CARD Act may have made the process of obtaining and maintaining credit for some individuals and businesses even worse. The following is a list of some of the issues.

New and/or Higher Penalty Fees

While the Credit CARD Act did limit how much consumers would be charged for late payment or over the limit spending on their credit cards, the Act did not address the creation of other penalty fees. For example, in late 2009, Fifth Third Bank started charging $19 for cardholders who had not used their credit cards in 12 months (2). Citi started charging a higher interest rate for cardholders who spent under a certain monetary amount.

Higher Interest Rates

The Credit CARD Act did impose interest rate limits on existing balances, but it did not impose interest rate limits on future balances. This has led to Citigroup charging cardholders an interest rate of 29% if they do not pay their balances on time (3). It has also led to First Premier Bank offering a credit card with an astounding 79.9% interest rate (2).

Closed Accounts and/or Lower Limits

Banks and other credit card issuers have always tried to protect their bottom line. With the economy in a recession, two methods that are currently in use are the closing of consumer credit card accounts and/or the lowering of their spending limits. Either tactic can be detrimental: more and more consumers rely on credit cards for business purchases, and the closing of an account can lead to personal bankruptcy. A lower spending limit can affect the consumer's debt to available credit ratio, impacting his or her credit score.

Business Cards Not Protected

The Credit CARD Act protections apply only to consumer credit cards, not business credit cards or charge cards. Small businesses that use corporate credit cards may still end up paying high interest rates on current or future balances, or experiencing reduced limits or punitive finance charges. There are some outliers, however: Bank of America recently announced that it would apply many of the protections guaranteed by the Credit CARD Act to small business customers as well (4). This includes a commitment by the bank to not raise interest rates on current credit card balances, which is good news for its more than 2 million business customers.

The Bottom Line

For those who are concerned about what protections the Credit CARD Act will and will not extend to consumers, the bottom line is that it is best to make payments on time and maintain a low revolving balance. Doing otherwise can lead to a reduced credit score, which in the long run can be more detrimental than the payment of high interest rates or finance charges (5).

References:

1.The CARD Act of 2009 and What it Means for Credit Card Holders http://www.associatedcontent.com/article/1928626/the_card_act_of_2009_and_what_it_means.html?cat=3

2.What's NOT covered by the credit card reform law http://www.creditcards.com/credit-card-news/not-covered-credit-card-law-1282.php

3. Credit-Card Fees: the New Traps http://online.wsj.com/article/SB10001424052748704804204575069374130248754.html

4. Bank of America Extends CARD Act Protections to Small Biz http://www.businessweek.com/smallbiz/running_small_business/archives/2010/04/bank_of_america.html

5. What the new Credit Card Act can mean to the consumer http://www.anewhorizon.org/financialtopics/creditcardact.asp