Responding to an outcry from consumers, in 2009 Congress overhauled the rules for credit-card companies. The bipartisan CARD Act ended some questionable—and lucrative—bank practices, like charging hidden fees and offering low introductory interest rates only to jack them up suddenly. The industry hated the reforms and issued dire predictions that they’d mean the end of plastic.
Three years later, card companies are sheepishly, if quietly, admitting that they’re seeing a surprising benefit from the conservative lending the law was designed to promote. “If there is a silver lining to the CARD Act—I’m not here to say the CARD Act was good for our business, so nobody misunderstand the comment—but if there were a silver lining to it, it forced rationality,” said Mark Graf, chief financial officer of Discover Financial Services, at an industry conference in May. Rationality means not giving credit cards to just anybody—especially those who’ve shown they’re at high risk of falling behind on their payments or defaulting. That seems obvious enough, yet it wasn’t the case when, as Graf put it, the credit industry was engaged in a “silly race to the bottom.”