US Financial News

The CARD Act (Credit Card Accountability, Responsibility, and Disclosure Act) of 2009 attempts to eliminate some deceptive policies (albeit legal prior to this legislation) formerly used by many credit card companies to increase their income. Consumers have been subject to a variety of unpleasant increases in costs, including both rapid interest escalations and higher fees for all manner of circumstances.

Responding to numerous consumer complaints, the U.S. legislature studied all card companies, their practices, and then-prevailing regulations. Congress concluded that many consumer concerns were legitimate and needed correction or clarification.

In addition to limiting or eliminating some formerly legal policies, elected officials also responded to a consistent consumer complaint that credit card agreements were often confusing and nearly impossible to understand.

The U.S. government modified card statement and agreement language to make it easier for consumers to read and comprehend them. The primary goal of these features is to allow average consumers to understand their current credit card agreements and help them compare credit cards to locate the best terms. This should eliminate the former confusion when people try to compare credit card offers. Credit card offers should now be much easier to understand and make credit card comparison a more effective exercise when searching for the best deals.

The CARD Act addresses other financial issues and attempts to restrict some unwelcome “surprises” for cardholders. Seeking credit card deals should be easier and more satisfying.

The most important and potentially damaging card company practice, increasing credit card rates at any time and for any reason, has been eliminated. For example, that wonderful sale price a buyer finds for a long desired flat-screen TV might formerly double over time, as the card company may have increased interest rates for each of the following three months. Imposing finance charge increases on previously purchased items is now forbidden.

On paper, the provisions of the CARD Act are wonderful benefits for all cardholders. However, people live in the real world, not on paper. Credit card companies have worked within the new regulations to salvage as much income and control as possible. In the history of the U.S., there never has been a “perfect” piece of legislation, and the CARD Act is in this category.

Potential future effects

Observers of the credit card industry are divided in their opinions of the future effects of the CARD Act. While all agree that this legislation is positive in its intent and addressed many cardholder concerns, there is sometimes uncertainty about the future realities of these measures. Most agree, however, some of these regulations help ensure that low interest credit cards may now appear to be real, not simply for balance transfers or credit card rewards offers.

Student credit cards

For example, student credit cards (cards for persons under 21) were a major concern for legislators. Credit card companies were present on many campuses, had referral fee financial agreements with some colleges and universities, and were freely dispensing new card accounts to many students who had no source of income (and, therefore, repayment).

The CARD Act restricts card companies’ campus presence, prohibits referral agreements, and requires that students obtain a co-signer unless they can verify that they have income to repay balances.

Future effects could include better credit ratings for young people, opportunity to compare credit cards without undue influence from campus card companies, and more responsible borrowing lessons for the under-21 group. Conversely, the future may also bring fewer opportunities for credit (no co-signers or income), the possibility of having student cards cancelled at expiration date, and a lack of access to funds for some students.

Over-limit fees

Another source of concern (and increased fees and interest) was over-limit charges. Formerly, a cardholder purchasing items that generated charges over his credit limit was automatically approved. Unfortunately, this also triggered not one but two problems. Card companies charged over-limit fees, which could be substantial, AND implemented higher interest rates on the entire outstanding balance on the credit card.

This policy has been eliminated. However, now a cardholder with a purchase that exceeds her spending limit will receive a “decline” when her card is swiped. Alternatively, some credit cards allow consumers to give their companies “permission” to approve over-limit charges if the cardholder doesn’t object to the fees and increased rate.

Cloudy forecast

The future is cloudy because some knowledgeable observers believe these new consumer protections may make it difficult for many credit card companies to earn sufficient income to comply and remain profitable. There is some concern that, while cardholders will enjoy more protection from detrimental card company practices, consumers may also suffer restricted credit opportunities or dramatically higher qualification requirements.

CARD Act supporters maintain that all consumers will benefit, even if some credit restrictions evolve. They believe that cardholders will improve their financial situations, since credit card misuse has caused many consumers severe economic problems in the past.

Supporters are convinced that the long-term future ramifications of the Act will eventually help consumers strengthen their financial foundations.