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How The Credit CARD Act Fares 3 Years Later

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Three years into the new age of US credit card reform has truly changed the face of industry.

Only some of the predictions made by industry experts have come true while other speculations seem to have been way off the mark.

With President Obama’s Credit CARD Act reaching its third anniversary, industry representatives and experts are trying to determine if the reformation attempt has been a success.

Of course, some predictions have come to pass while others have not been quite so quick to come true. Nonetheless, the landmark reformation movement has caused quite a stir in the financial market.

In order to truly examine the overall effect of the CARD Act it is first important to look at the state of credit cards before the enacting of the Act on May 22 of 2009.

Here are some of the most significant components of the credit card industry that the CARD Act aimed to address:

  • Credit card companies could raise your interest rate at any time and for any reason, even on your existing balances. What is most interesting about this is that credit cards were the only form of consumer lending where your terms could be changed on the whim of the lender
  • Credit card companies could mail your bill to you as little as 14-days before it would be due and change the due date at their own discretion.
  • Credit card companies could “force” you into plans with excessive fees or rates and then allow you to exceed your credit limit in order to maximize those fees
  • Credit card companies could market their products (often predatory) directly to college students on campus, with particularly attractive incentives
  • Credit card companies could also apply your payment in a way that ensures you still pay the maximum amount of finance charges (by paying off your low-interest balances first, for example)

When the Credit CARD Act finally went into effect in February of 2010, all of these things changed, providing more protection to the individual consumer. The new laws:

  • Prohibit unregulated discretionary rate changes without notice to the customer
  • Require a 21-day minimum between bill statement issuance and bill due dates
  • Assuage the over-limit regulations to allow the consumer to decide how they want to manage overdraft protection in order to avoid or minimize fees
  • Ban aggressive marketing to college students
  • Limited credit card availability to minors under the age of 21
  • Require that any consumer payment that is made towards a credit card bill must be applied to the highest interest rate associated with that card.

Of course, this is just the beginning. Credit card issuers must now also provide their customers with a minimum of 45 days before they can make any changes to the card so as to provide enough time to shop around for a competing rate or other benefits. In addition, the new reform puts a cap on late fees.

What many economists, financial planners, and credit card experts have predicted, though, was that credit card companies would try to find other ways to maximize their profits even with the new regulations in place.

Strangely enough, though, only some of these predictions came true. For example, base interest rates are slightly higher now, but this increase seems to only apply to new credit card approvals. Even then, the increase hasn’t been as high as anticipated.

As a matter of fact, according to Josh Frank, a senior researcher for the Center for Responsible Lending, “the rate people actually pay is down, but the rate that people see is maybe up slightly.” He says,

The CARD Act did work in making rates more honest and making pricing more clear.

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