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From Banking and Finance Law Daily, December 3, 2015

CARD Act: ‘gotcha’ fees/costs down, availability up, says CFPB

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau has published a report on the Credit Card Accountability Responsibility and Disclosure Act (CARD Act)’s effect on the credit card market since it was signed into law in 2009. The bureau reports that the CARD Act helped to reduce the cost of “gotcha” credit card fees by more than $16 billion. Further, total costs to consumers have fallen with the elimination of certain back-end pricing practices such as over-limit fees, according to the bureau.

“When these reforms were being debated, many in the credit card industry reacted as if the sky were falling,” CFPB Director Richard Cordray said in prepared remarks before the Consumer Federation of America on Dec. 3, 2015. “They said that restricting back-end pricing would make it harder for consumers to get credit because companies would be forced to issue fewer credit cards at greater cost.” Despite these “fire and brimstone warnings,” Cordray said, the CARD Act has made the credit card market more predictable for consumers without reducing access to credit or hurting the profitability of the credit card companies.

Report. The CARD Act requires the CFPB to regularly review the credit card market and the impact of the law’s rules. The current report is the second one issued by the bureau. In general, the CFPB found that consumers are paying less for their credit cards, costs are easier to predict, and credit availability continues to expand. Specific findings include the following:

  • Consumers have avoided more than $9 billion in over-limit fees and saved more than $7 billion in late fees.
  • The total cost of credit is approximately 2 percent lower.
  • Available credit has increased by 10 percent since 2012.
  • New account volume is growing. More than 100 million credit card accounts were opened in 2014.

Risky business. Despite the positive effects of the CARD Act, the CFPB remains concerned over certain “risky practices” that still remain in the marketplace. The bureau especially is concerned about:

  • deferred-interest promotions that hit consumers with back-end pricing if their balances are not paid in full by the end of the interest-free period;
  • high charges by subprime credit card companies;
  • reward programs that have “obscure and incomplete” terms;
  • practices by third-party debt collectors hired by banks; and
  • long, complex credit card agreements.

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