Credit Card Reform has Lowered Fees, Hiked Transparency

Credit Card Reform has Lowered Fees, Hiked TransparencyThe CARD Act, which brought historic reform to high credit card fee and other abuses, was signed into law in May 2009, affecting the more than 70 percent of adults have who have at least one card.
The Consumer Financial Protection Bureau now confirms that the cost of credit cards, including the virtual end to over-the-limit fees, has been reduced by the reform.
For example, the average late fee has decreased by $6.
Meanwhile, policies regarding all fees and policies are clearer as a result of tougher transparency rules.
But concerns remain, the CFPB says in a new report, including increases in annual fees and interest rates — despite the overall cost of carrying a card going down, for now.
The CARD Act (Credit Card Accountability Responsibility and Disclosure Act of 2009) made sweeping changes, by preventing unexpected interest rate hikes, curbing unfair or excessive late fees, and creating an opt-in requirement for over-limit fees.
The CARD Act also instituted new disclosure requirements designed to make credit card costs clearer for consumers. The CFPB assumed authority for the CARD Act in July 2011.
The CFBP found that:
Total cost of credit declined: The total cost of credit declined by two percentage points between 2008 and 2012. The total cost of credit includes all fees, interest, and finance charges paid by the consumer to the card issuer. The decline in the total cost of credit has occurred even as annual fees and interest rates have increased, indicating a shift from back-end pricing toward more transparent front-end pricing that consumers can understand and evaluate more easily.
Over-the-limit fees have been effectively eliminated: Before the CARD Act took effect, card issuers could charge an over-limit fee for transactions that put cardholders over their credit limit. Each overlimit transaction could result in an additional over-limit fee.
Size of late fees declined: The CARD Act required that penalty fees, such as late fees, be “reasonable and proportional” to the relevant violation of account terms. As a result, the report found that the average size of late fees diminished. The CFPB estimates that the average late fee went down by $6 after the CARD Act took effect. Based on the data used to prepare the report, that reduction resulted in a $1.5 billion decrease in late fees paid by consumers in 2012.
Here are some of the CFPB’s concerns:
Add-on products: Add-on products are optional services sold by credit card companies to cardholders. Examples of these products include debt cancellation, identity theft protection, and credit monitoring. The CFPB has found in some enforcement cases that consumers were being misled by companies into buying these products. The CFPB remains concerned about the ways these products are marketed and will continue to pursue deceptive practices in the market.
Fee harvester cards: The CARD Act report recognizes that application fees or other fees charged before an account is opened do not count toward determining whether a card issuer is violating the CARD Act’s rules limiting fee harvester cards. The Bureau will continue to monitor the use of application fees in connection with account openings to determine if it should take action under its available authorities.
Deferred interest products: Credit cards that finance purchases without interest for a period of time are known as deferred interest products. With these products, if the balance is not paid in full by a given date, the accumulated interest is assessed retroactively. The Bureau intends to study the risks and benefits of such products.

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