The Dark Side of the CARD Act: CardRatings Research Confirms Consumers Fears

There��s no doubt that the new credit card legislation was long overdue and that it offers some wonderful consumer protections. But even though consumers could see the benefits from the Credit CARD Act, they also felt that, as with all good things, there��s sometimes a bad side that comes along with it.

An August 2009 CardRatings.com poll reflected that belief when 80 percent of respondents said they thought interest rates would increase due to the CARD Act. Over the past month, a new CardRatings.com poll was taken to see if consumers�� predictions were on target. The latest poll showed that while consumers have great instincts, they were perhaps a little too optimistic. An overwhelming 86 percent of poll respondents said their interest rates increased in the past 6 months.

"I find it very interesting that an even higher percentage of adults actually saw rate increases on their cards than was initially anticipated. This tells me that consumers�� worst fears about rate hikes not only came true, but that the reality of the situation leading up to the implementation date of the CARD Act on Feb. 22nd was even worse than consumers had anticipated,�� says Curtis Arnold, founder and CEO of CardRatings.com.

How much of an increase have consumers faced?

According to data we compile for The New York State Banking Department, the average credit card interest rate collected at the end of 2008 was 13.68 percent. At the end of 2009 the average interest rate collected increased to 14.89 percent. 

 ��I, too, as an expert, underestimated the wide range of unintended negative consequences. One thing I did get right, though, is that I predicted last May when the CARD Act was signed that average card rates would rise to around 15 percent on the implementation date. I'm sure quite a few folks thought I was overshooting the mark on this. As it turns out, if anything, I was underreacting!" says Arnold.

Unfortunately, the bad news doesn��t end with the average interest rate. Take a look at a comparison between the average penalty APR and various fees for the end of 2008 and 2009:

Average Penalty APR: 

2008: 26.62%
2009: 27.32%

Average Foreign Transaction Fee: 

2008: 2.49%
2009: 2.60%

Average Cash Advance Fee:

2008: 3.35%
2009: 3.47%

Average Balance Transfer Fee:

2008: 2.86%
2009: 3.24%

Don��t let these charges sneak up on you. It��s more important than ever that you read your credit card and disclosure statements when you receive them. Stay informed and you��ll know where your money is going. This is especially important since there��s still another phase of the legislation to roll out.

Third time��s the charm? Probably not

The third phase of the CARD Act kicks in on August 22, 2010. This part of the legislation requires card issuers who increase a cardholder��s interest rate to periodically review the new rate and to decrease the rate if the review is positive. The third phase also addresses new rules for gift cards and requires that credit card fees are ��reasonable and proportional�� to violations.

Will this phase also see credit card issuers continue to find creative ways to tack on fees and raise rates? There��s a lot of wiggle room in ��reasonable and proportional,�� so most likely, there will be new challenges for consumers to deal with.

About the Author

beverly

Beverly Blair Harzog is a spokeswoman and contributing editor for CardRatings.com. She's a former CPA and an award-winning personal finance journalist. She's a former columnist for the Navy Federal Credit Union��s magazine, Home Port, and has written about credit issues for CNNMoney.com, FoxBusiness.com, Good Housekeeping, Bankrate.com, Bottom Line Wealth, CreditCards.com, AARP Bulletin Today, and more. She��s also the co-author of The Complete Idiot's Guide to Person-to-Person Lending (Alpha Books/Penguin, April 2009). Follow her on Twitter @beverlyharzog .