Makin' Money

Credit card reform: Take two

Chris Farrell Feb 16, 2011

A year ago most of the new federal credit card rules went into effect. The Credit Card Accountability Responsibility and Disclosure Act of 2009 was designed to give greater consumer protection with their credit cards. Yesterday, we looked at a study placing the blame for the recent hike in credit card interest rates on the economy, not regulatory reform.

Today the Wall Street Journal highlights another studypraises the impact of the regulatory changes. It’s by the Center for Responsible Lending:

During congressional debate on the credit-card bill, banking groups such as the American Bankers Association, or ABA, argued the proposal would result in a significant pull-back in credit while also increasing the cost of credit.
But the Center for Responsible Lending’s research disputes those claims. The report says before the landmark credit-card law, credit-card issuers relied on confusing, complex pricing to charge more than consumers expected.

The report offers a detailed analysis. It’s key findings are:

1) The new rules reduced the difference between stated rates and actual rates paid on credit cards. In other words, pricing is less tricky and more transparent. Consider this figure: An estimated $12.1 billion in previously obscure yearly charges are now stated more clearly in credit card offers.

Their chart illustrates the trend.

2) Once the economic downturn is taken into account, the actual rate consumers have paid on credit card debt has remained level.

•3) Direct-mail offers have been extended at a volume and pace consistent with economic conditions.

Next week, we’ll see what the new Consumer Financial Protection Bureau has to say about the CARD Act. It will hold a conference on it at the Treasury Department on February 22.

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