The credit card industry has largely cleaned up its act in the four years since sweeping new federal rules took effect, though some concerns remain, the Consumer Financial Protection Bureau concluded this week. The CFPB’s 102-page report on the impact of the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) passed in 2009 found that consumers have saved billions in reduced penalty fees; the total cost of credit has declined and credit card issuers have dramatically improved disclosures and product transparency since the law took effect Aug. 22, 2010.
Average credit card late fees decreased by $6 after the CARD Act took effect and overlimit fees largely have been eliminated, the CFPB said. If everything else had remained equal except for the changes made by the CARD Act, consumers would have paid about $2.5 billion more in overlimit fees in 2012 than they actually paid, while consumers similarly saved $1.5 billion in late fees, according to the CFPB. Credit card contracts became shorter and easier to understand, shrinking by more than 2,000 words on average, with improved readability, CFPB Director Richard Cordray said. While some concerns remain about how card issuers provide consumers with disclosures online, most issuers went beyond requirements in improving product transparency, he noted.
The CFPB also noted concerns about an increase in annual fees (from $32.48 in 2008 to $34.19 in 2012) and a rise in interest rates, along with an overall tightening of credit since the recession. But $2 trillion in unused available credit remains, the agency noted. The agency vowed to keep an eye on the way card issuers sell add-on products, such as debt cancellation, identity theft protection and credit monitoring, promising to pursue any deceptive practices in this area.
In its report the CFPB did not address prepaid card issuers, which scrambled in 2010 to comply with a CARD Act provision requiring that certain disclosures, including fees, expiration dates and contact information, appear on gift cards themselves and other information be included on the packaging. But the CFPB’s recent report suggests prepaid card issuers must remain vigilant, according to Margo Hirsch Strahlberg, an associate with Bryan Cave LLP and Paybefore contributing editor. “The report serves as a reminder that the CFPB’s continued focus on deceptive marketing and clear and transparent disclosures are key considerations throughout the product development stage,” she said. It’s unclear whether the CFPB will report on the CARD Act’s effects relative to prepaid cards.