Home > Credit Cards > Credit Card Late Fees Are $6 Less Than Before the CARD Act

Comments 0 Comments

Credit cards have become less costly for consumers during the past few years, an improvement the Consumer Financial Protection Bureau partially attributes to the CARD Act of 2009.

In a report it released today, the CFPB outlined several improvements felt by consumers, including reduced fees and simplified credit card agreements. These and other changes have led to a two-percentage-point decline in credit card costs to consumers from the fourth quarter of 2008 to the same time in 2012. That cost is calculated taking the sum of amounts paid by consumers (like interest and fees) and dividing it by the average of outstanding balances.

Some of the changes that contributed to this decline can be directly tied to the Credit Card Accountability Responsibility and Disclosure Act, the report states. The act required penalty fees to be “reasonable and proportional” to the violation, and late fees are now $6 lower on average than before the act. Bills must now also be due on the same day of the month, and issuers can only charge late fees if a cardholder has been given 21 days to pay the bill. As such, consumers paid $1.5 billion less in late fees last year.

Another cut to consumer costs came in the regulation of overlimit fees. The act specified that consumers must opt-in to charging beyond their credit limits and incur fees as a result. Under this new rule, consumers spent $2.5 billion less on overlimit fees in 2012, and the CFPB said they “have been largely eliminated.”

The Growth of Consumer Protection

To put the analysis in perspective, CFPB Director Richard Cordray highlighted the circumstances under which Congress passed the act.

“The economic landscape in May 2009 was quite poor,” according to prepared remarks for the CARD Act Field Hearing in Chicago today. He touches on the high unemployment at that time and the plummeting Gross Domestic Product. He was Ohio’s Attorney General in May 2009. “We saw firsthand how hard people were struggling to stay afloat. Particularly with respect to credit cards, people were extremely frustrated, and they were complaining loudly and frequently about being dinged by unexpected fees and about dealing with card agreements full of fine print and legalese they could not decipher or understand.”

Now, the CFPB said credit card agreements are an average of 2,000 words shorter and more readable, though the CARD Act didn’t mandate length or form of the agreements.

“The end result is a market in which shopping for a credit card and comparing costs is far more straightforward than it was prior to enactment of the Act,” the report reads. Those costs more closely represent clearly disclosed interest charges and annual fees, allowing consumers to make better-informed decisions.

The act limited hidden fees and changes in interest rates, leading to the upfront pricing, but also an overall increase in interest rates. While the CFPB said the increase does not directly correlate to the CARD Act, it may have been a way for issuers to make up for the loss in fees as a result of the act.

The credit card savings go beyond clearer terms. After the onset of the Great Recession, fewer consumers had access to credit, but conditions of the CARD Act have allowed credit to be more responsibly distributed among the population.

An applicant’s ability to pay must be considered before they are issued credit, cardholders must request an increase in their credit limits (previously, increases were often unsolicited) and potential cardholders under the age of 21 must prove they can independently pay their debt or have a cosigner aged 21 or older before receiving a credit card.

“Based on the information we have available to review changes in the credit card market, the Act eliminated many unfair fees, made some market practices more transparent, paved the way for easier comparison shopping, and created a market where consumers can see the costs upfront,” Cordray said. “These changes are critical to strengthening consumer protections in the marketplace and helping us rebuild our economy.”

Looking Ahead

The CFPB’s report isn’t saying “All credit card problems in the U.S. have been solved!” In fact, the bureau identified several issues it takes with credit cards. Practices like add-on products, high upfront fees and retroactive interest resulting from promotional financing will receive more scrutiny from the bureau, as well as many areas for improvement when it comes to agreement transparency.

While the country awaits further analysis from the CFPB, consumers can take responsible credit card use into their own hands. When shopping for a credit card, one of the most important things a consumer can do is understand his or her own credit history. By using a free online tool that allows you to monitor your credit scores (Credit.com’s Credit Report Card is one such tool), consumers can evaluate their financial behaviors and how they impact their creditworthiness, which can help them find a credit card that suits their needs.

As the CFPB highlighted, transparency has improved but has room to grow, so it’s important to carefully research products before committing your financial future to them.

Image: Purestock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team