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.”
