Reform legislation that took effect five years ago has saved consumers $16 billion in “gotcha credit card fees,” the director of the U.S. Consumer Financial Protection Bureau said Thursday.
In a new report on the impact of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), the Bureau found that “over-the-limit” fees and other “back-end pricing” practices have essentially come to an end.
Additionally, credit has generally become more available to consumers and the number of new accounts has grown faster than in almost every other major consumer credit market globally.
“There is more work to do,” said CFPB Director Richard Cordray. “But with commonsense rules in place, credit cards are safer and more affordable, credit is more available, and companies remain profitable with improved customer satisfaction.”
Signed into law in May 2009, the CARD Act created lower-cost and more transparent credit market by protecting consumers against unexpected interest rate hikes, excessive late fees, and hard-to-avoid over-limit fees. The CFPB assumed authority for the CARD Act in July 2011.
The Bureau’s report found that since the CARD Act:
Consumers have avoided more than $9 billion in over-limit fees: Before the CARD Act took effect, card issuers charged back-end fees that consumers might not discover until they owed the money. Card issuers could authorize transactions that put consumers over their credit limit and then charge a typical $35 over-limit fee. The CARD Act effectively eliminated these fees by requiring companies to get an affirmative opt-in from consumers to be charged for exceeding their credit limit. Had these fees continued at their pre-CARD Act level, consumers would have paid $9 billion more from the beginning of 2011 through to the end of 2014.
Consumers have saved more than $7 billion in late fees: The CARD Act also required that penalty fees, such as late fees, be “reasonable and proportional” to the relevant violation of account terms. Today’s report found that the average late fee has declined by 20 percent since the CARD Act. Had these fees continued at their pre-CARD Act level, consumers would have paid more than $7 billion from 2011 through 2014.
Total cost of credit is roughly 2 percentage points lower than before the CARD Act: The total cost of credit includes all fees and finance charges paid by the consumer to the card issuer. Today’s report, similarly to the CFPB’s 2013 report, found that the total cost of credit is almost 2 percentage points lower than it was prior to the enactment of the CARD Act.
Available credit has increased 10 percent since 2012: Today’s report found that credit card credit is increasingly available to consumers. In total, consumers have access to nearly $3.5 trillion in credit as of early 2015. This represents an increase of nearly $325 billion—or 10 percent—since early 2012.