Study: CARD Act Is Helping Consumers


NEW YORK (MainStreet) – It’s been a year since the consumer protections of the 2009 CARD Act took effect. But have they made it easier for consumers to understand what their cards cost as advocates promised?

Indeed they have, says a new study by the Center for Responsible Investing, a consumer advocacy group.

“New credit card rules mandated by the Credit CARD Act of 2009 have resulted in significantly greater price transparency for consumers,” the Center reports. “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,” the report continues.

The study looked at the difference between the “stated” rate on solicitations consumers received, mostly in the mail, and the actual rate they ended up paying after they received their cards. The actual rate includes not just the interest charged on card balances but also other fees that consumers have long had difficulty assessing.

“An estimated $12.1 billion in previously obscure yearly charges are now stated more clearly in credit card offers,” the center said.

This gap between stated rates and actual ones “widened to unprecedented levels by 2004 and stayed at those levels through 2008,” the center reported. “This difference narrowed markedly in the wake of reform, with stated prices on solicitations moving much closer to actual prices.”

The study also found that card rates had remained stable during the year since the act took effect. Card issuers had argued the law would lead to higher rates.

But the critics have long argued that card issuers deliberately made contract terms confusing to fool customers into paying more in interest and fees than they intended. Card issuers said all terms were spelled out in contracts, and that CARD Act rules would stifle innovation and increase costs which would get passed on to consumers, and make issuers turn down more card applicants.

The council claims its study is more accurate than others, some of which have found rate increases, because it distinguishes between the stated rates listed for all account holders and the actual rates paid on accounts on which interest is actually assessed. “Given that multiple rates can apply to any given account, it is this latter number which most accurately reflects the interest rates that cardholders actually pay,” the center said.

The stated rate is often lower than the actual rate. In the past year, it has fallen by 0.75 percentage points compared to when the law was passed, the report found.

The gap between these two rate measures is now just 0.2 percentage points, compared to 2.3 percentage points at the peak in the 2004-2008 period. In 2007, for instance, stated rates averaged a little over 13% while actual rates exceeded 15%. Now the rates are practically the same, just under 14%.

“Contrary to credit card industry claims, the new rules have not caused prices to increase or access to credit to fall,” the council concluded.

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