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Back in 2009, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act was signed to great fanfare, with the White House lauding it as a "turning point for American consumers." The question is, which way have things turned for consumers? By at least one measure, the CARD Act may have been a multi-billion dollar turn in the wrong direction.

The CARD Act was implemented on Feb. 22, 2010, and the two-year anniversary of this date marks a fair time to assess the Act's successes, failures, and overall implications for consumers with credit cards.

Counting the costs of the CARD Act

Though the CARD Act did not take effect until February 2010, it had been signed by President Obama nine months earlier, and discussed openly for months before that. In the interim, there was a flurry of activity among credit card companies as they adjusted their rates and fees presumably in anticipation of the new law.

So, to get a true reading on the impact of this law, it was necessary to go back to late 2008 for a look at how things were before anticipation of the CARD Act started to change things. To do this, CardRatings.com compared terms on roughly 500 credit card offers from late 2008 and late 2011, and found the following impacts that may be attributed to the CARD Act:

  1. Higher interest rates. From the end of 2008 through late 2011, the prime bank rate was unchanged, and mortgage rates fell. Credit card rates, on the other hand, rose. The CardRatings.com study found that annual percentage rates on new credit card offers rose by an average of 2.1 percent over that period. While these higher rates wouldn't have immediately affected existing customers, over time this new rate environment would start to affect more and more balances. Based on roughly $800 billion in outstanding U.S. credit card debt over much of the past two years, this 2.1-percent increase in credit card rates would translate to an annual additional consumer cost of $16.8 billion.
  2. Heavier burden on customers with poor credit. In part, the CARD Act was intended to protect customers with credit problems. Those cardholders were subject to the steepest rises in their credit card rates. However, it is these same customers who appear to have been hurt the most by rising rates over the past few years. While the lowest rate tier of credit card offers, for consumers with excellent credit, rose by only 1.6 percent from late 2008 to late 2011, the highest rate tier, for consumers with poor credit, rose by an average of 3.4 percent over the same period.
  3. Ballooning balance transfer fees. Balance transfer fees have also risen over the past few years. For one thing, fewer cards now put a cap on the maximum balance transfer fee. Instead, they charge a percentage of the amount transferred. In late 2008, 31 percent of credit card offers had a cap on balance transfer fees. Now, just 4 percent do. In addition, the average percentage charged has risen to 3.3 percent from 2.1 percent, a difference that would cost you $120 more on a $10,000 balance transfer.

Can all of these costs be blamed on the CARD Act? Given the aftermath of the 2008 credit crunch and the significant market changes as a result (including credit card companies reducing credit lines or cancelling cards outright in order to manage their risk), it's impossible to be certain. But as the most significant change in the industry between the two time periods that were compared, the CARD Act seems to bear much of the responsibility.

Considering the benefits

At the same time, there have been some benefits to the CARD Act:

  1. Fewer late fees. The CARD Act required that billing cycles be standardized, and that customers be given a minimum of 21 days to pay a credit card bill. In one snapshot comparison, the Consumer Financial Protection Bureau found that between January and November 2010 monthly late fees had dropped by $474 million. This suggests that consumers may be paying around $5 billion less in late fees every year compared to before the CARD Act.
  2. Fewer over-the-limit fees. Similar to overdraft fees on your checking account, over-the-limit fees are charged if you exceed your credit limit. The CARD Act banned credit card companies from charging this type of fee unless you expressly opt into the program. If you don't opt in, transactions which would exceed your credit limit are simply denied. Since the new law, many credit card companies have backed away from over-the-limit fees: Only 40 percent of credit card offers feature those fees now, compared with 95 percent before the CARD Act.
  3. Lower over-the-limit fees. Perhaps because credit card companies now have to convince you to opt into fees for exceeding the credit limit, those fees have become more competitive. CardRatings.com found that the average maximum over-the-limit fee is now about $14, down from $33 in late 2008.

Advocates of the CARD Act would claim one other benefit: that the law has limited the circumstances under which interest rates can be raised in reaction to economic events, your payment history and your changing credit status. However, if credit card companies have responded by raising rates in advance and across the board, it hardly seems that consumers are better off.

Shifting the burden among credit card holders

At this point, it is impossible to tell how much the lower fees in some areas are counteracted by higher fees in others as a result of the CARD Act, but the 800-pound gorilla in the discussion is the $16.8-billion potential added annual cost due to higher interest rates.

Besides the likelihood of a higher overall cost, one thing the CARD Act has clearly done is shift the way the cost burden is distributed among credit card holders. By protecting cardholders who are late with payments or have credit problems, the CARD Act seems to have caused cardholders in general, including customers with excellent credit, to pay higher interest rates.

But wait, there's more. The implications of the CARD Act go beyond the reach of that particular law. The CARD Act was followed a year later by the Dodd-Frank financial reforms, which included a variety of regulations addressing checking account fees. The similarity is that both have produced some unintended consequences. The consistent theme is that when regulators try to micro-manage the banking business to benefit certain customers, the outcome seems to be higher costs for everyone.