Credit Cards

Are CARD Act Critics in Complete Denial?

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Are CARD Act Critics in Complete Denial? (cont.)

Here comes a study by the Center for Responsible Lending saying that maybe reports of the demise of the American credit card holder might just be a tad premature.

According to the Wall Street Journal, the CRL says, “This report’s findings refute claims by the credit-card industry that the new credit card rules have restricted access to consumer credit and raised its costs.” Significant transparency has been achieved while access has not been denied and costs have not skyrocketed.

Our own Christopher Maag blogs that, according to the CRL Report in 2007 and 2008, confusing, complex pricing that obfuscated true rates and fees – as well as the ever widening gap between rates presented in credit card solicitations and those actually paid by cardholders (approximately 2.3%) – cost consumers $16.3 billion more than they expected.  However, after enactment of the law, the gap between advertised and actual rates dropped to .2%. As a result, the difference between what people thought they were being charged and what they were actually charged shrunk by more than $12 billion, according to Josh Frank, CRL senior researcher and author of the report. No doubt some serious clams, but a lot less fishy, yes?

[Related Article: Study: CARD Act Sheds Light on $12B in Hidden Fees]

As we troll for the truth, let’s also look at another prediction versus reality.  Maag quotes an August 24, 2010 Wall Street Journal editorial, to wit:

“It was among our safest predictions that reduced credit to consumers would result” from passage of the Act. “By limiting the ability of banks to increase rates on delinquent borrowers and to charge fees on unprofitable customers, Washington encouraged card issuers to be more selective in advancing credit and to demand higher rates when they do.”

Maag reminds his readers that “when adjusted to factor in the effects of the recession, data from the Federal Reserve Board shows that interest rates held steady after passage of the Act.” And, “The ratio of American families receiving credit card solicitations in the mail actually increased after the act passed, from 40% in 2009 to 60% recently, according to mail volume data from Mintel Comperemedia.”

Do I see a slight blush on the faces of the Murdoch marauders?

According to the Journal, “a study CardHub.com released this week finds that high credit-card interest rates over the past few months have been the result of the economic environment, not the CARD Act.”

Are those at the American Bankers Association, who came to scoff, remaining to pray? Well, not exactly.

As per the Journal:

Still, the ABA, says that while the CARD Act has helped lead to greater price transparency for consumers, the reality is less credit and higher prices for a number of Americans.

“We think the real story is that the number of new accounts is dramatically down and a significant number of working Americans are being edged out of the marketplace or facing higher rates and tougher credit terms,” said Kenneth Clayton, ABA’s senior vice president and general counsel for card policy. “It’s impossible to say at this time whether that’s a result of the CARD Act, the economy, or a bit of both.”

What do you think? Are they banging on the facts, banging on the law, or banging on the table?

Image by Josh Kenzer, via Flickr

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  • http://businessworkingcapitalloans.com Neal Coxworth

    I think the CARD Act has been tremendous success. Its too bad it took the utter devastation of the US economy to spur our complicit legislators to action. The ABA will always chirp endlessly about any attempt to limit banking profits with spin and obfuscation. That’s what lobbyists are paid to do. Oone only has to look at a statement from their credit card company to realize how much more straightforward it is.

    As for banks giving up on credit cards? Please……there is still a bank for every consumer that will issue them a card. Why? The interest spread is phenomenal, especially for the big guys. The fact that the government took a few hundred basis points away from them via legislation makes them cry foul, but that will never pull them away from the “honey hole” of high rate, unsecured consumer debt.

  • Lauren

    Your omitting a very real fact that interest rates increased dramatically, for months preceding the CARD act, because banks knew that they would be limited in making increases later. So yes, there is greater transparency, but people are paying more. They are just more knowledgeable about what they are paying up front. Also, those with damaged credit, are getting secured credit cards, where they have to pay the full amount of their credit line up front.

    So is it working? Well, yes, from the standpoint of greater transparency. But rates have gone up dramatically preceding the CARD act, and it is more difficult for those with bad credit to get an unsecured credit line. So, you be the judge — is it working for you?

  • Pingback: Deregulators Trying to Destroy the Economy? | ELU 24

  • Abin Clane@Private Student Loan

    Great article about credit card debt. According to recent reports, the Card Act is working pretty well. This is of course for the benefit of most consumers and I do hope it will stay this way.

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