After last week, credit card companies can no longer assess arbitrary interest rate hikes and inactivity fees and must charge realistic late penalty fees.
But consumers shouldn’t hold their breaths. “Now they are instituting a number of other practices—perfectly legal even after the new law—to make up for lost revenue, and consumers now have some new things to worry about,” said Chuck Jaffe in a column on MarketWatch at the beginning of this year.
In retrospect, did the implementation of the Credit Card Act deliver what was promised?
While the CARD Act curbed fees and increased transparency, the credit card industry turned on their creative juices and found new ways to circumvent regulations, according to a recently released Pew Charitable Trust Center study.
“Our latest research confirms that many troublesome practices have disappeared from the market,” according to the Pew study. However, “a troubling new trend emerged: some disclosures stopped including the size of penalty interest rates even as issuers reserved the right to impose them.”
Overall, issues such as lack of transparency and inequitable practices were largely addressed by the CARD Act.
Also, rate hikes on existing balances and varied charges for using different payment transfer vehicles are a thing of the past. Penalty fees for minor infractions are kept at reasonable rates and many credit card issuers eliminated arbitration clauses.
Fraud examiner Tracy L. Coenen, in a column earlier this year, wrote that credit card companies are changing from fixed interest rates to variable interest rates, so an interest rate hike would become perfectly legal as interest rates rise.
Also, a number of card companies have become less transparent about what could cause a penalty rate to increase. “Credit cards are now safer and more transparent for consumers than at any time in recent years. … Still, higher transaction surcharges and the use of undisclosed penalty rates are undermining the general trend toward increased transparency,” the Pew researchers said.
The researchers challenged regulators to close all remaining loopholes through minor policy adjustments and for once have the credit card industry become more publicly oriented and consumer friendly.
The researchers took issue with the fact that “the Federal Reserve recently refused to set rules to ensure that penalty interest rate increases are subject to its ‘reasonable and proportional’ standards, indicating its belief that Congress did not intend such regulations to exist.”
Consumers Weigh In
Regardless of credit card laws, consumers are curtailing their spending habits. “Federal Reserve statistics show that Americans owe about 15% less on their credit cards than they did two years ago,” according to an article on the CardRatings website.
But on the other hand, the Synovate Global Opinion Panel’s latest survey result suggests just the opposite. According to Synovate, credit card holders have increased credit card usage by 6 percent since the end of 2009.
“Overall, the credit engines are chugging along and gaining speed,” Synovate said in a statement.
During the first quarter, credit card delinquencies have decreased by 8.3 percent over the prior quarter with the largest decline experienced in Vermont (18.18 percent) and New Mexico (16.7 percent), according to TransUnion, a global credit and information management company.
“The last four quarters of consecutive decreases in credit card balances shows that consumers continue to focus on paying down their credit cards. ...We see the effect of this conservative approach on delinquencies as well,” said Ezra Becker, director at TransUnion, in a press statement.
Credit card users have many types of credit card options, including basic cards that do not offer cash rebates, miles, points, or any other perks. But rewards, a service orientation, and resolving problems still weigh in heavily when consumers select a credit card for daily use.
Approvals of credit card holders increased slightly last year with American Express Company credit cards holding the top spot and Discover Card coming in a close second, according to a recent J.D. Power and Associates study.
Overall, HSBC USA Inc. and Citibank N.A. cards received the lowest ratings in almost all categories. Cards issued by Bank of America Corp., JP Morgan Chase & Co., U.S. Bankcorp, and Wells Fargo & Co. are middling in customer satisfaction.
“Overall customer satisfaction with credit cards has rebounded from a three-year low in 2009, but professed loyalty continues to slip as skepticism that card issuers are focused on customers’ best interests remains,” J.D. Power said.
Peddling Credit Cards to Businesses
The CARD Act addresses credit card usage by the ordinary consumer, but left out any mention of business credit cards.
Credit card companies pile on penalties for even being a few minutes late with payments, and interest rate hikes can show up without any warning on certain corporate cards.
“Significantly the consumer protections of the new Credit CARD Act do not apply to business credit cards. As a result, business credit card issuers still can, and many do, levy harsh penalties on business cardholders,” according to a recent Credit Card Guide article.
“In extreme instances, a late payment can trigger default penalty rates as high as 29.99% APR on existing balances,” said the Credit Card Guide regarding corporate cards.
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