In an Election Year, CARD Act Crucial

It’s not likely President Obama expected the 2009 CARD Act would play a big role in his future re-election efforts, but with anti-regulatory issues continuing to rise to the top in the nation’s capital, that’s exactly what’s happening.

It wasn’t that long ago that bipartisan majorities in both the House and Senate worked surprisingly well together in its combined efforts of defending consumers against predatory practices in the credit card industry. This could be his most successful effort to date. Evidence is everywhere that’s it’s effective and serving its purpose.

The politicians, unfortunately, weren’t able to keep the pleasantries in tact after the Act’s passage, but we thought a walk down memory lane might be a nice break from the campaign brutalities.

Unfair Fees

You may recall one of the Act’s crucial provisions was to limit unfair fees. It’s paid off. Companies are now required to provide 21 days between the time they mail a bill and when they charge a late fee. It didn’t take long to see the effects. Before the law went into effect, around half of all American households with credit cards had paid a late fee at least once in a year. This year, that number’s been slashed in half, much to Jamie Dimon’s chagrin.

Remember those pesky over the limit fees? Those bank policies were confusing for many consumers. Instead of denying credit card transactions that sent a credit card over its limit, the credit card companies would usually process them anyway and then hit their customers with high fees. This, of course, sent them even further over their limits.

The CARD Act, for all intents and purposes, stopped those over the limit fees. Of course, that means the credit card transactions are being declined for many folks, but it keeps them within their credit limits. This particular provision has been slightly controversial in that some consumers say the credit card companies shouldn’t be punished for allowing a transaction to go through, even if they do cost the consumer a fee.

Each has his own responsibility to keep his personal finances in check. Still, the move is saving those consumers money each month. One study finds that the elimination particularly help African American and Latino households, who were more likely to report a reduction in over-the-limit fees.

The law prevents unfair interest rate hikes, too. So far this year, 24 percent fewer households have experienced an interest rate hike due to a late payment than four years ago.

Informed Statements

We’ve all seen another mandate of the Act: the inclusion of more information by the credit card companies on our monthly statements. That information includes how long it will take a consumer to pay off his current credit card balance if he pays only minimum monthly payments. A full one third of households say they are responding to this new information included on their credit card statements by paying their balances down faster. By making bigger payments, they are able to get out of debt sooner while also saving money on interest payments.

Despite the positive changes the CARD Act has allowed, there are still low- and middle-income households that rely on their plastic to make ends meet – something credit cards weren’t designed to do. Forty percent of households used credit cards to pay for basic living expenses such as rent or mortgage bills, groceries, utilities, or insurance since 2011 due to a lack of cash. Some say once the economy improves, that number will too.

When asked about the one biggest contributor to their current level of credit card debt, more than half of households say it’s the lack of cash to cover expenses.

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