Study: New credit card rules helped consumers without raising rates

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A year after tighter credit card regulations took effect, an advocacy group study concludes that they succeeded in making banks come clean about how much consumers actually pay to use cards.

The Center for Responsible Lending study examined the effect of the Credit Card Act of 2009, which the industry had predicted would result in higher card interest rates. It said that, after adjusting for the effect of the troubled economy on card issuers, ‘actual prices [for credit card use] have remained stable and available credit has not tightened beyond what would be expected.’


(Plenty of borrowers, of course, have seen rates on individual credit cards rise. The Center for Responsible Lending relied on a Federal Reserve national average called ‘accounts assessed interest’; click the link to the study for details.)

The law stemmed from complaints that consumers had been misled for years into thinking they would pay less for credit card debt than was true. It imposed the greatest changes in three decades on the credit card industry, including tougher restrictions on interest rate hikes and late fees.

From a Los Angeles Times story when regulators first proposed the new rules in December 2008:

The new measures were needed to reverse a trend in which the pricing schemes and terms of credit cards have grown increasingly complicated and obscure, leaving consumers frustrated by mysterious charges, Federal Reserve Chairman Ben S. Bernanke said. The banking industry opposed the measures, contending that card issuers would be less likely to take a chance on people with weak credit. Card companies will also be forced to raise interest rates to cover the expense of the new measures, saddling most card users with higher costs, said Edward L. Yingling, chief executive of the American Bankers Assn. But consumer advocates said the measures, adopted by the Fed, the Office of Thrift Supervision and the National Credit Union Administration, were needed to address hidden traps and fees nestled in the fine print of card applications.

A spokesman for the American Bankers Assn. said the group has not yet produced its own studies on the effect of the legislation and that it’s too early to gauge the law’s effect.

‘Overall it has been a net positive for consumers, but there have been trade-offs,’ the ABA said in a statement released by spokesman Peter Garuccio, which went on:

Consumers now benefit from greater transparency and control over their card accounts (e.g. clearer billing practices, no interest rate increases for existing balances and required 45 day advance notice for increases to future balances). The trade-off is that some consumers that used to have access to credit cards no longer do or are paying higher prices for it. The difficult part is teasing out just how much of these changes to attribute to the CARD Act and how much to attribute to the economic downturn. We think they are attributable to both.

The Center for Responsible Lending study said the difference between the stated rate on credit card solicitations and the rate consumers actually paid widened to unprecedented levels in 2004 and stayed there through 2008. After the new rules took effect, the stated prices on solicitations moved much closer to actual prices, the study found.

‘An estimated $12.1 billion in previously obscure yearly charges are now stated more clearly in credit card offers,’ the advocacy group said.


December 2008 story: Credit card changes will give consumers a break

-- E. Scott Reckard