5 Signs That Credit Card Reform Is Really Working

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In 2009, the Credit Card Accountability, Responsibility, and Disclosure Act became law. The law's intent was to set limits on certain fees that credit-card issuers charged their customers and to make it clearer to cardholders what they needed to do in order to avoid other fees.

Most of the provisions of the CARD Act went into effect in 2010. Now, three years after the law's implementation, the Consumer Financial Protection Bureau has come out with a report evaluating the successes and failures of the CARD Act in relation to credit-card customers. Here are five signs that the law has helped achieve its goals.

1. Credit-Card Customers Are Paying Less in Over-the-Limit Fees.

Most credit cards impose a fee if you make charges above your credit limit. For customers who routinely stay nearly maxed out on their credit cards, staying below those limits can be a challenge.

The CFPB report found that over-the-limit fees have become much rarer under the new law. During the fourth quarter of 2008 before the law's implementation, 16.4 percent of accounts were over their credit limit at some point, and card companies imposed over-the-limit fees almost half the time. By the fourth quarter of 2012, over-the-limit situations affected 12.7 percent of accounts, but card companies almost never imposed fees when that happened -- only 3.4 percent of the time.

2. Late-Payment Fees Have Gotten Smaller.

Credit-card companies also routinely charge fees if you're late in making a payment on your account. In 2008, the average amount charged for late-payment fees was more than $33.

In the aftermath of the CARD Act, late-payment fees dropped markedly to just over $23 in 2010. Since then, fees have crept up again, approaching $27 by late 2012. Also, the percentage of accounts incurring late fees has dropped by three to four percentage points, falling to 22.2 percent in 2012.

3. Fewer Young Adults Are Getting Credit Cards.

One big danger that the CARD Act sought to address was the incidence of adults age 18 to 20 obtaining credit cards without any income to support payments. As a result, many young adults got deeply into debt even before they began their careers, digging financial holes that were understandably difficult to climb out of.

The CFPB reports that the number of new cards issued to customers between 18 and 20 has fallen by more than half over the past five years. Only 14.4 percent of young adults had opened a credit-card account in 2012, down from 33.6 percent in 2007. The reductions can largely be traced to the requirement that card applicants under 21 either show proof of adequate income to cover their own payments or obtain a cosigner.

4. Credit Card Agreements Are Getting Easier to Read.

If you've ever tried to read the fine print of a credit-card agreement, you already know how long and complicated they are. The CARD Act sought to make credit disclosures shorter and easier to understand, providing realistic examples that would show the impact of certain decisions on how much customers would pay for their credit.

It worked. The CFPB found that on average, credit-card agreements have gotten substantially shorter -- by almost 25 percent. In addition, the CFPB found that the agreements also used language that was easier to understand, making their terms more readable.

5. Total Cost of Credit Has Fallen.

Overall, the CFPB found that the amount that cardholders pay for credit on their card accounts fell by almost two full percentage points between 2008 and 2012, from 16.4 percent to 14.4 percent. The CARD Act can't claim to be the sole cause of that phenomenon, but in light of the fee reductions that have resulted from its enactment, the law deserves at least some of the credit.

Be Smart About Credit

Even with the CARD Act's success, you still have to be careful in managing and tracking your credit-card accounts to avoid fees. With issuing banks still looking for ways to make money from their cards, you should stay vigilant to make sure you don't fall into any unexpected fee traps.

You can follow Motley Fool contributor Dan Caplinger on Twitter@DanCaplinger or on Google+.

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Do liberals really believe that the big banks lost any money with The Card Act? I worked for the 5th largest bank and when this b.s. regulation went into effect all the bankers did was find new ways to charge fees. Banks make a TON of money from fees and the liberals are so easily duped that they really believe the consumer came out on top of this deal. The banks are enjoying record profits while peons think they hit the jackpot by not having to pay a $35 late fee. We already know that liberals aren't very good at math. I opted out on all my cards when this was enacted which meant I kept my low rate but closed the account to future use. Liberals should mind their own business and stop trying to "protect" us.

October 05 2013 at 1:14 AM Report abuse rate up rate down Reply
1 reply to tami.sheffler's comment

Liberal liberal liberal...is that all ya got???
Credit applications have never had a box to check to show ones political affiliation.
Contrary to what you seem to believe, financial institutions rip off 'conservatives' and Independents as well.
I can say with certainty that every effort to dumb down education has originated with a conservative republican in my State, because uneducated people tend to make poor financial decisions and are more easily cheated.
On the other hand, I know several over educated conservatives who get ripped off left and right because they are so lacking in commonsense.
Guess all we can say with any degree of truthfulness based on facts, is that ALL people get cheated by big businesses regardless of liberal or conservative leanings.
And that people like you need to get over your BS political bigotry.
Here's a news flash, attitudes like yours are what enable these thieves to stay in power. This isn't a football game where one team wins and one loses, we are ALL losing the financial security of this Nation.
Don't gloat over supposedly 'liberals being easily duped' get mad that ANYONE is and do something about it besides whine about a non-existent antagonist whom you seem to think you are somehow superior to.

December 12 2013 at 8:23 PM Report abuse rate up rate down Reply

Credit reform working who are you kidding - it is working for the banks. One late payment = less fee but automatic interest rate of 29% or higher the rest of the credit cards life span. They borrow at under 2% yet those without perfect credit pay 16 to 21 percent interest and at times fees on top of that. They still can take a payment instantly but refund mistakes within 3 business days to 2 weeks. Then we add on Fair Issac credit reporting - the people measuring your credit try to sell you information about yourself and hold power over your life based on credit card and debt collectors who run crazy with reporting mistakes and inaccuracies (especially those debt collectors that re-age your debt for their benefit)!

October 04 2013 at 10:17 PM Report abuse +1 rate up rate down Reply

I have almost perfect credit. My highest interest rate before this act of congress was 8% fixed rate on my credit cards. Now they are all variable above 12%. The banks borrow from the taxpayers for next to zero percent. Still trying to figure out how the government helped me, the consumer, with this law! VOTE OUT ALL INCUMBENTS! This congress and president only help the multinational corporations and free loaders. We have a responsibility to have our voice's heard."Vote out incumbent corruption everywhere! Only "We the people..." can put term limits on congress by voting them out!

October 04 2013 at 4:40 PM Report abuse +1 rate up rate down Reply
S Schnock

Use to be you would get notices all the time for 0% for a year. We would call our card holders and they would match. We have not gotten any for years and our cards sit at about 12%

October 04 2013 at 2:40 PM Report abuse +2 rate up rate down Reply
Bryan Bishop

I just finished typing my comment THEN registered, and this stupid site wiped out my comment and welcomed me with a clean board. What stupid jerks! I was saying that my credit was and is good, but the CARD Act screwed my credit cards up. I have very low interest (8.99%) fixed rate cards, but since this act took effect I lost my low interest rate and can't find anything below 14% variable rate. The good people suffer when big brother tries to protect fools from themselves! Idiots!

October 04 2013 at 2:21 PM Report abuse rate up rate down Reply

This is bull,,, I use credit cards occasionally. I owe no a dime to anyone anything. My credit card rates have gone from 8.9% to 14.99% to 27.99% because i do not carry a balance. If i decided I needed to carry a balance then my cost has gone up substatially. They borrow for practically nothing

October 03 2013 at 4:16 PM Report abuse +3 rate up rate down Reply

Fallen to 14.4% when they can getfunds from the FED for near zero? Sounds better than time share margins.

October 03 2013 at 4:10 PM Report abuse +4 rate up rate down Reply