Credit cardsDuring the battle over Credit CARD Act, much talk focused on what the legislation would -- and wouldn't -- do. A year after the two-phase law was rolled out, what's the word now?

Mostly, it's been a mixed bag.

Some of the significant changes under the law included:
  • 45-day notice if the terms of your card change.
  • No rate increases in the first year.
  • Payment dates must be the same every month.
  • Statements must be delivered at least 21 days before the due date, and the statement must be explicit about late fees and other consequences of late payment.
  • Fees cannot exceed 25% of the initial credit limit on the card, and over-limit fees aren't allowed.
"The Credit CARD Act was designed to protect consumers from unfair credit card practices, eliminate predatory credit card lending tactics and increase transparency," says Barbara Stark of the nonprofit American Debt Counseling. Before this law was passed, she notes, "Banks could charge usurious fees to cardholders who went over their limits, apply payments to balances with lower interest rates first, put forth credit card offers with hidden fees and interest rate information and extend credit to individuals under the age of 21," she adds.

Before the act was passed, banks said that as a result of its provisions, they would have to raise rates or tighten credit, recalls Howard Dworkin, founder of Consolidated Credit Counseling Service.

New Fees, Higher Rates

So, now how is credit card landscape shaping up? "New fees have emerged as a way to make up revenue, including foreign transaction fees, inactivity fees and minimum finance charges," says Ken Lin, CEO of Credit Karma, which offers free credit scores. Alliance Data Systems, which issues private-label cards for retailers, had recently started charging customers $1 per month to receive statements by mail but has since suspended the fee.

Interest rates have risen, from an average of just above 13% to 14.7% now, says Dworkin. However, a recent study from CardHub.com revealed that the increases result from the economic environment, not the CARD Act. Card issuers are cutting back on the amount of credit they extend to borrowers. The average credit line on a new card is $3,900 compared to more than $4,400 a year ago -- an 11% drop, he adds.

Then, too, the CARD Act aimed to protect students from credit card dangers by requiring those under 21 to have a co-signer on the account and prohibiting credit card companies from sending pre-approved offers to those under 21 in the mail. According to a recent study from the University of Houston, 76% of undergraduate students received standard credit card offers in the mail over the past year.

While it's still legal for companies to send such offers (the pre-approved offers are illegal), "the study shows how willing credit card companies are to find any and all loopholes,' says Scott Gamm, founder of HelpSaveMyDollars.com. "Credit card offers sent in the mail are usually littered with high fees and interest rates," he adds.

Getting Vital Information

So who's the winner in this credit battle royal? "The affluent still have affordable access to credit cards and lucrative reward programs. The demographic the act was to protect finds it very difficult to receive credit, and whey they do, it's expensive. Overall, there has been a negative impact on consumers," says Tim Smith, senior vice president at Firstsource Solutions, a business processor outsourcing company.

But knowledge is power. Says Stark of American Debt Counseling: "Consumers now know the real cost of making purchases with credit cards, as well as the consequences of making only the minimum monthly payment."

According to a survey conducted by Consumer Reports this past summer, 23% of those who participated said they're now making payments greater than the minimum as a result of the warning on the credit card bill. Having information like how long it will take to pay off a bill if only minimum payments are made can help consumers more effectively manage their cards, says Mary Ann Campbell, spokesperson for IndexCreditCards.com.

Consolidated Credit Counseling Service's Dworkin estimates that $12.1 billion in previously obscure yearly charges are now stated more clearly in credit card offers.

"When the CARD Act went into effect, many people feared it wouldn't help alleviate debt because they would be hit with new credit card fees. We are thrilled to see that in actuality, people have been freed up to pay off more debt and that interest rate increases have been negligible," says Schwark Satyavolu, CEO and co-founder of BillShrink.com.

Hidden Gotchas

Perhaps the biggest losers are those with less-than-stellar credit. "There's been a double whammy as issuers have cut credit lines. This has lowered credit scores [line utilization is an important factor in credit scores], further worsening their condition," points out Scott Crawford, founder of DebtGoal, an online service that helps people get out of debt.

While you'll find plenty of opinions about the CARD Act's results, it's still early. Issuers aren't through playing their hands. "Be wary of any late payments. Many credit card companies are sending out rate-adjustment notices immediately if a payment is late, increasing the interest rate on the card. If you're late, not only are you assessed late charges, but often receiving notice of an immediate interest rate increase at the same time," warns Kevin Gallegos, a vice president at Freedom Debt Relief.

He contends there will be more fees down the road. "CARD limits utilization fees [disallows inactivity fees], but now card issuers are offering lower interest rates to customers who are using their cards. This is just another way of penalizing customers who are not using their cards," he adds.

In May, Bank of America (BAC) will begin applying new $59 "membership fees" to about 5% of its credit card customers. "From a regulatory perspective, membership fees are considered finance charges," says Odysseas Papadimitiou, CEO of CardHub.com. "Therefore, increasing membership fees is equivalent to increasing interest rates."

Finally, says Dworkin, "The CARD Act was a win in terms of more transparency and disclosure. It's up to people to make sure they aren't getting blindsided by credit card companies." Then again, he says, "The best option is to use cash. If you don't have the money, don't buy. This way, you don't have to worry about what credit card companies do, and you'll never accrue credit card debt."

Easier said than done for most us, however.


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March 13 2011 at 9:02 AM Report abuse -1 rate up rate down Reply
redoak58

I had to cancel at least three cards due to them charging me a yearly fee even though the cards were originally NO-FEE credit cards. I told the issuing companies where they could stick their cards. This just goes to show that businesses will always outsmart politicians with their legal teams and Congress just creates more problems when they try to solve one, which they probably created in the first place.

March 07 2011 at 5:01 PM Report abuse +2 rate up rate down Reply
sigmastef

the one i liked the most was that they now have to ask you if you want your card to work if your account is over the limit. i had a guy from capital one trying to convince me over the phone to allow it. i told the guy off because i knew what they were up to. man i didnt realize one time and wound up paying them bastards like $600. i was pissed !

March 07 2011 at 3:02 PM Report abuse rate up rate down Reply
Your Excellency

What a revelation! Those with money have an easier time getting credit at competitive rates than those without money. Who would have thunk it?

March 07 2011 at 2:57 PM Report abuse +2 rate up rate down Reply
jesuaphn

If you can not pay for it in cash, don't buy it.
The credit card companies got us by the cojones no matter what the governmet does; they can always find a way to get more from us.

March 07 2011 at 2:47 PM Report abuse +2 rate up rate down Reply
work im

As someone who is working on paying off lots of debt, the CARD Act was a blessing. Before the CARD Act, all my card companies started raising their APRs despite a perfect payment history - not 1 or 2% but by up to as much as 19%! Why? Because they could. I felt that my principal would never go down. Now my stress levels are down knowing that as long as I keep my payments current, I don't have to worry about a card going from 6.75% APR to 27%. The CARD Act won't DIRECTLY benefit EVERYONE (ie. people who have no debt) but the pros outweigh the cons.

March 07 2011 at 2:01 PM Report abuse +1 rate up rate down Reply
ThinkUp70

It probably would be better if all Americans divorced their "little plastic cards", instead of their spouses. Their use has divided way too many marriages.

March 07 2011 at 1:43 PM Report abuse +1 rate up rate down Reply
tandd105

cut up your cc like I did mine went from 8% to 17% told them where to put the card use cash no cc no atm card just cash

March 07 2011 at 12:51 PM Report abuse +4 rate up rate down Reply
1 reply to tandd105's comment
fallinsky

That's nice in prstice but try renting a car without plastic, or getting a hotel room,going on vacation for buying anything online (actually HOW are you posting this on AOL without a credit card). How about if your car brakes down, you need it for work but you don't have the $1,000 to pay to get it repaired? It's real "cute" to say "cut up your cards" but its just not real.

March 07 2011 at 5:01 PM Report abuse rate up rate down Reply
poguedg

The government did no real credit card legislation that helps consumers. It was just publicized window dressing while the credit card companies jacked of their rates. Beyond all the BS, look at the balance sheets of the credit card companies and you will see they are doing very well in spite of the current depression. You may need to dig a bit cause they try to dilute the credit card profits and offset these gains by other bad mortgage or wealth managment investments. They charge the business up to 6% per transactions plus monthly fees and cost of equipment. If the average person holds $10K/month on their card, do the math. They were not hurting at 6%, they are making money hand over fist at over 10%. And by the way, they still get money from the fed at under 1%.

March 07 2011 at 12:22 PM Report abuse +10 rate up rate down Reply
1 reply to poguedg's comment
Mardie

And with the advance notice of the legislation, card companies raised rates immediately. My Amex card went from 7.9 to 17.9. When I called to complain, I was told there was a notice in my bill stating the rates were going up...like I read all that little stuff. I do always check the rate listed on the bills. When I asked why, I was told there was no problem with my credit rating or my card use but they had to make up for losses. I asked why when they had such exaggerated profits, I didn't get a bonus. They had no answer. So now I only use it when necessary and pay immediately or in a month.

March 07 2011 at 3:30 PM Report abuse +1 rate up rate down Reply
jonas

I have not carried a balance on any credit card in 20 years, I have one card that had a $10,000 limit on it (I always pay the total amount) My credit score is "824" but they lowered the limit to $4,000 just all at once, no explanation, just blam. I don't really care because I never charge that much anyway.

March 07 2011 at 12:13 PM Report abuse +5 rate up rate down Reply