Card Law Has Ended Many Harmful Practices, Pew Says

Customers are notified if their rate will increase
Bank of America Corp. president and chief executive officer Brian T. Moynihan. Photographer: Jonathan Fickies/Bloomberg

Credit cards offered online by the 12 largest U.S. banks have eliminated some of the most troublesome practices for consumers, the Pew Charitable Trusts said.

Increasing interest rates on existing balances for some infractions of the card agreements and applying payments to balances with the lowest interest rates first have ended, according to the report released today by the Philadelphia-based nonprofit organization. The study looked at almost 450 cards advertised by banks and credit unions and compared terms for cards offered in March 2010 and July 2009.

Many of the changes are the result of the Credit Card Accountability Responsibility and Disclosure Act, which takes effect in stages. Its provisions include limiting rate increases and requiring banks to apply payments to higher-rate balances. Most of these rules took effect Feb. 22; others began Aug. 20, 2009, and some, such as prohibiting excessive late-payment fees, will take effect Aug. 22.

“The good news is the market is much more transparent now and lots of the practices deemed harmful to consumers have gone away,” said Nick Bourke, director of Pew’s Safe Credit Cards Project, which began studying how the industry treats consumers in 2007. “There are still challenges.”

Penalty Rates

Penalty rates for actions such as missed payments remain widespread, the report said. The median penalty rate rose by one percentage point to 29.99 percent and almost half of bank cards, including a card issued by Charlotte, North Carolina-based Bank of America Corp., didn’t disclose their penalty rates, the report said. Some issuers didn’t specify what would trigger increases or how cardholders could return to lower rates.

“We review customers who are 60 days past due on a case-by case-basis to determine if it is appropriate to re-price the account,” said Betty Riess, a Bank of America spokeswoman. “We don’t have an automatic trigger.”

Customers are notified if their rate will increase and what it will be, and they have the opportunity to opt out and close the account, Riess said.

Median fees for bank cash advances and balance transfers also rose to 4 percent from 3 percent. There was no indication of a trend toward adding new fees, the report said. Fourteen percent of cards surveyed included an annual fee compared with 15 percent in July 2009, while the median annual fee increased to $59 from $50.

“The challenge will continue to be maintaining the transparency that the card legislation was all about as the market evolves,” Bourke said.

The industry is working hard to implement the changes the law brought about “to eliminate frustrating practices and to help customers manage their accounts betters,” said Kenneth J. Clayton, senior vice president of card policy for the Washington-based American Bankers Association.

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