Most first birthdays are a time for pure celebration. But when it comes to the first birthday of the controversial Credit Card Accountability and Disclosure (CARD) Act, no one is celebrating. The law first took effect on Feb. 22, 2010. Leaders of large banks and credit card companies remain furious about many parts of the act, and they are lobbying on multiple fronts to re-write it, restrict its power or limit the funding needed to enforce it.
Many consumers and their advocates, meanwhile, point to the good things the CARD Act has already accomplished. They worry that changing it now would hurt consumers, and ultimately the banks themselves, by allowing deceptive practices to continue that threaten to weaken the entire economy.
“David beat Goliath, but make no mistake: Goliath is not down for the count,” Elizabeth Warren, President Obama’s assistant in charge of setting up the new Consumer Financial Protection Bureau, said last week.
Is the CARD Act Good or Bad for Consumers?
The first disagreement is over whether the CARD Act has saved consumers money, or cost them more. Many banking industry experts and Republican commentators believed the law would increase the cost of lending, which would drive lower-income people away from using credit cards.
[Related Wall Street Journal editorial board wrote on Aug. 24, 2010.
So far, the data is mixed on whether the CARD Act has made it easier or more difficult for consumers to get credit. According to a Credit.com survey, 37% of respondents said they noticed their banks making changes to their credit card accounts that hurt their credit or cost consumers more money.
A report by the Center for Responsible Lending found nearly the opposite, however. By forcing credit card issuers to use less confusing language in their advertising messages and descriptions of their products, the CARD Act made consumers aware of $12.1 billion a year in previously hidden fees and charges, the report found.
Is the CARD Act Good or Bad for Retailers?
Perhaps the hottest disagreement right now is over interchange fees, which the CARD Act addressed by directing the Government Accountability Office to study such fees. Interchange fees are the fees that merchants pay each time a consumer swipes her debit or credit card. The fees go to banks and, sometimes indirectly, to the credit card networks (Visa, MasterCard, Discover) who facilitate the transactions so the merchants get paid.
Depending on the type of card, average swipe fees increased anywhere from 22% to 83% between 2000 and 2009, the GAO found. Merchants upset over paying such high fees lobbied successfully to pass the Durbin Amendment to the Dodd-Frank financial reform law, which required the Federal Reserve to write rules restricting debit card swipe fees to something more reasonable.
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The Fed proposed limiting the fees to 12 cents per transaction, a 70% reduction from the current average of about 44 cents.
That proposal touched off a Battle Royale between retailers on one side, banks and credit card networks on the other.
“The government-mandated price control elements in the Federal Reserve’s proposed rule will severely affect consumers everywhere, causing new consumer fees, including checking account fees, and pushing low-income customers out of the banking system,” David Kemper, CEO of Commerce Bank, told the House Subcommittee on Financial Institutions and Consumer Credit.
Meanwhile, retailers maintain that they represent the interests of consumers.
“Congress recognized last year that the credit card companies and big banks have been extracting monopoly-like fees from merchants and their customers for far too long,” said Mallory Duncan, general counsel for the National Retail Federation.
Is It Working? (cont.) »
Image: Chuck Kennedy [public domain], via Wikimedia Commons
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