Banks Struggle in CARD Act Compliance

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CardHub.com gave six out of 10 credit card issuers “poor” to “fair” ratings in their recent study of penalty annual percentage rate policies following the Credit Card Accountability, Responsibility and Disclosure Act of 2009. American Express (Stock Quote: AXP), Bank of America (Stock Quote: BAC), Citi (Stock Quote: C), Discover (Stock Quote: DFS) , U.S. Bank (Stock Quote: USB) and HSBC (Stock Quote: HBC) were among the credit card issuers to receive largely negative reviews in all categories.   

Penalty APRs are essentially higher interest rates that can be triggered by an infraction from a card holder.

The study determined that an ideal credit card statement would contain the following: an adequate explanation of a penalty APR’s trigger on existing transactions, the portion of the balance that will be affected by a penalty APR, how to get back to your regular rate and a disclosure stating that no penalty APR (other than a 60-day delinquency on payments) could be enforced in the first year an account has been open. Capital One (Stock Quote: COF), Chase (Stock Quote: CCF), USAA, and Wells Fargo (Stock Quote: WFC) received a “Good” or “Excellent” rating in the majority of the categories.

CardHub additionally found that a statement from the Federal Reserve Consumer’s Guide to Credit Cards did an equally poor job of explaining the applicable penalty APR laws under the CARD Act.

CardHub ranked the issuers based on how clearly they stated their Penalty APR policies in their credit card applications and/or statements. When available, Cardhub reviewed three different credit card applications for each issuer for clarification. According to the Web site, the six issuers were “rated poorly because they were either very vague or appeared to be utilizing the new rules to engage in ‘gotcha’ rate practices.” None of them adequately explained how their penalty APRs work and how they may affect consumers and, oftentimes, the applications had misleading information.

Under the legislation, the only trigger that can affect existing transactions is being 60 days delinquent on payment. American Express, Bank of America, Citi, Discover and HSBC fail to mention this entirely.

Additionally, CardHub examined the issuers’ explanations on how other triggers, such as making one late payment or going over a credit limit, would affect new transactions.  Bank of America, HSBC and the Federal Reserve received poor ratings for failing to explain that the penalty APR could only be applied to new transactions (as opposed to existing ones) as long as cardholders were not 60 days delinquent on payment.

Finally, issuers were evaluated on how well they explained to card holders how the non-penalty APRs could be restored. American Express, Bank of America, Capitol One, Citi and Discover failed to mention that, by law, they were required to remove the penalty APR on prior purchases once the card holder has made the minimum payment for six consecutive months.

Prospective credit applicants can view the rest of the study here before deciding which application to fill out.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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