Card Rules Curb Rates, Block Overdraft Fees, U.S. Consumer Bureau Says
Credit-card rules that took effect last year curbed interest rate increases and late fees, and almost stamped out charges for exceeding credit limits, according to the new U.S. Consumer Financial Protection Bureau.
Before the new rules, 15 percent of existing credit-card accounts were re-priced with a new interest rate each year; that has fallen to 2 percent, according to an agency study released today. Over-limit fees -- charged when customers exceed credit limits -- have “virtually disappeared,” the study found.
Late fees fell to $427 million in November, less than half the $901 million total for January 2010, the last month before the rules took effect. The average late fee declined to $23 from $35 over the same period, according to the study.
Elizabeth Warren, the Obama administration adviser who is setting up the bureau, is hosting a conference today to assess the Credit Card Accountability, Responsibility and Disclosure Act. The law’s main provisions, such as restrictions on timing and size of interest-rate increases and enhanced disclosure of card terms, took effect a year ago.
Warren has made credit cards and mortgages top priorities for the bureau, which is scheduled to officially begin work on July 21. At the Card Act conference, she said “there are a lot of moving parts in a credit card price” that make it difficult for consumers to understand the true cost of credit.
“Our next challenges will be about further clarifying price and risk and making it easier for consumers to make direct product comparisons,” Warren said in her opening remarks.
Some credit-card issuers have “gone further than the law requires” in some areas, Warren said. “Leaders in the industry deserve credit for moving in the right direction,” she said.
Consumer and industry groups praised the law in separate statements.
The Card Act has ended “some of the bait-and-switch tactics that unfairly trap credit-card consumers in high- interest debt,” said Pamela Banks, senior policy counsel for Consumers Union, the publisher of Consumer Reports.
New disclosures give card users “an effective tool for controlling the cost of the financial products they use every day,” said Steve Bartlett, chief executive officer of the Financial Services Roundtable.
The consumer bureau study drew its findings from data collected on a voluntary basis from the nine largest bank-card issuers and an unpublished report from the Office of the Comptroller of the Currency.
In a separate study, the bureau found that consumers are aware of changes on their monthly billing statements, though only 32 percent understand their credit-card agreements.
Warren has argued for a new approach that emphasizes simpler disclosure to help consumers to comparison-shop, and she downplayed the need for additional prohibitions.
“We can probably agree that this approach -- write a rule, avoid a rule, write another rule -- is costly for consumers and the industry,” Warren said today in her prepared remarks. “Because it multiplies the number and complexity of rules, this approach creates special challenges for those smaller banks and credit issuers that still offer credit cards.”