by Broderick Perkins
(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.
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.