by Broderick Perkins
DeadlineNews Group
(2/28/2011) Good news for financial reform and consumer advocacy: the
CARD Act is forcing credit card issuers to put more of their cards on the
table -- so to speak.
The new federal law is closing loopholes credit card issuers once slipped
through to gouge consumers and that's saving consumers money.
Credit card rules mandated by the Credit Card
Accountability, Responsibility, and Disclosure (CARD) Act of 2009 have
resulted in significantly greater levels of price transparency for
consumers, an about face for the industry, says Joshua M. Frank a senior
researcher at the Center for Responsible Lending (CRL).
"This reverses a trend of increasingly unclear pricing that for years
misled consumers into believing they would pay less for credit card debt
than was true. Inaccurate pricing information likely caused many borrowers
to take on more credit card debt than they otherwise would have," Frank
said.
The rates offered in come-on solicitations compared to those consumers
actually received widened significantly from 2004 to 2008, but that
difference has narrowed since reform cracked down on credit card issuers,
according to Frank's "Credit Card Clarity: CARD Act Reform
Works" report.
Frank says price transparency fosters competition and since the CARD Act
cracked down on poor truth in lending habits and demanded greater
disclosures, credit card prices have remained stable and credit has not
tightened beyond what is expected in economic hard times.
"The transparency resulting from the CARD Act has saved consumers real money
in terms of their cost of credit while costing banks a fortune in lost fees
and penalties. Interest rates increases and late fees have been
substantially reduced and over-limit fees, which were assessed when
consumers went over their maximum credit limit, have essentially vanished.
The CARD Act has turned out to be a major legislative victory for
consumers," said Nancy Osborne, chief operating officer of Erate.com, a Santa Clara,
CA-based financial information publisher and interest rate tracker.
In the past, without tight regulation, "credit card issuers relied on confusing, complex pricing to charge more than consumers
expected or understood," CRL reports.
Even as the rules were rolling out, skulking credit card issuers found a
host of new dirty tricks to spring on consumers, including fees
for not using cards, higher balance transfer and penalty fees, and
payment allocations that went to balances with lower interest rates,
allowing balances with higher rates to fester and grow.
The report also found:
• Not only have the new rules reduced the difference between stated
rates and actual rates paid, an estimated $12.1 billion in previously
obscure yearly charges are now stated more clearly in credit card
offers.
• Evidence to refute negative claims
by the credit card industry about have the new rules would restrict access
to credit cards and raise costs.
To the contrary, the on-going mortgage market meltdown is an example of
the financial disaster that can ensue without transparency and tough,
common-sense regulation.
CRL examined a host of data to check and cross check the findings.
CRL used:
• Two sets of Federal Reserve data, to track both rates stated on
solicitations and those consumers eventually paid.
• Banks' federally mandated "Call Reports" of income and financial
status, to examine transparency.
• Data from the private Mintel Comperemedia, to track mail
solicitations over time to determine, factoring in the economic downturn,
that solicitations held steady or rose during the downturn.
• The website CreditCards.com, to compare rates offered on all
credit cards to those offered on business credit cards, which are not
subject to the CARD Act.
"The effective rate on business cards increased relative to consumer
cards, further evidence that reform did not cause price increases," well,
except for business credit cards.
Other Articles:
Disclosure
laws protect consumers from more credit card debt
Due to CARD Act,
Some Banks Cut Fees
Debit
card regulations may hamper benefits
Credit
cards more transparent, but problems remain
Credit
CARD Act rewards faster balance pay off, credit scores
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