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WASHINGTON (Profitable.com) February 22 marks the one-year anniversary of the CARD Act, which ushered in a set of sweeping new reforms to protect consumers from some of the most egregious credit card practices.
Under the new law, consumers have enjoyed a number of significant protections, including stronger limits on retroactive interest rate hikes, better disclosures about the true cost of borrowing, new safeguards to make it easier to pay bills on time, and restrictions on how long penalty interest rates can last for late payments.
“The CARD Act has made a big difference by putting an end to some of the bait and switch tactics that unfairly trap credit card consumers in high interest debt,” said Pamela Banks, senior policy counsel for Consumers Union, the nonprofit publisher of Consumer Reports. “Thanks to the new law, consumers stand a much better chance of avoiding the credit card gotchas.”
Among the most significant provisions of the CARD Act are:
- Limits on Retroactive Interest Rate Hikes: It’s now much harder for banks to raise interest rates on money consumers have already borrowed. Banks can only raise the rate on an existing balance if the consumer is more than 60 days late making a payment or if they have a variable rate card or a promotional rate that has expired.
- Better Disclosures on Minimum Payments: Credit card statements now come with better disclosures to show consumers how much more money they’ll spend and how long it will take to pay off a bill by making just the minimum payment. A July 2010 Consumer Reports survey found that this provision is working: 23% of respondents said they are now paying more than the minimum payment because of the improved disclosure.
- Protections to help consumers pay on time: Credit card companies have to give consumers at least 21 days to pay their bill. They are prohibited from setting early deadlines and can’t switch due dates from month to month.
- Restrictions on how long penalty interest rates can last: If a consumer’s interest rate goes up because they were more than 60 days late, credit card companies are required to restore the old rate if the consumer makes on time payments for the first six months after the rate increase.
For a comprehensive description of CARD Act protections, see:
While these new safeguards have transformed the credit card market, some additional reforms are needed. Consumers Union outlined a number of actions that the newly created Consumer Financial Protection Bureau (CFPB) should take to better protect consumers:
- Reduce the amount that credit card banks can charge for a penalty fee, such as a late fee, from the $25 permitted by existing regulations to $10. Reduce the penalty fee level for a repeat incident from $35 to $15.
- Exercise Credit CARD Act authority to limit the size of penalty interest rates to amounts that are “reasonable and proportional” to the incident, such as no more than 7 percentage points over the prior rate. The current regulation addresses only the amounts of penalty fees, not penalty interest rate charges.
- Require credit card banks to give “earn your way back to a good rate” to all consumers who make six consecutive on time payments. Currently, consumers get this opportunity only if the first six payments after a penalty interest rate begins are all on time.
- Find and stop all evasions and violations of the Credit CARD Act.
- Require that credit card terms and conditions be simple enough to fit on a two-page plain language contract.
“The new law has been a big step forward, but consumers still need to be on the lookout for unfair credit card practices,” said Banks. “The Consumer Financial Protection Bureau should finish the job of protecting consumers from abuses by big banks and their credit card programs.”
The CFPB will get its full powers in July. In the meantime, it is asking consumers to send in their ideas for which issues it should tackle. Consumers who have experienced an unfair credit card practice or any other shady financial deal, can send in their ideas at www.consumerfinance.gov