Prior to the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, restrictions on credit card issuers were loose at best. In the wake of the Great Recession, the CARD Act imposed proof-of-income limits on card applicants under 21 years of age without an adult co-signer, set limits on interest rate increases on existing card balances, and directed payments above the minimum toward higher interest balances.
In addition, the CARD Act increased card issuer disclosure requirements. Cardholders must be told how long it will take to pay off an existing balance at the minimum monthly rate, and issuers now follow a standard template on fee and penalty disclosures.
As the CARD Act passes the ten-year milestone, CompareCards.com decided to survey over 1,000 consumers to evaluate the CARD Act and gather opinions on credit card regulation. An overwhelming number of respondents agreed that more should be done to protect consumers.
Only 6% of respondents disagreed that more legislation or regulation is necessary, compared to 79% that agree (with 55% strongly agreeing). Many respondents may not be aware of existing protections since 47% of respondents had never heard of the CARD Act – and only 40% of those respondents said the CARD Act had a positive effect while 45% said it had little or no effect. People's answers likely reflect their own credit card experiences.
The greatest CARD Act shortfall is the lack of credit card interest rate caps. Federal law prohibits credit unions from charging more than 18%, but other financial institutions may charge any rate that doesn't conflict with state laws where the card issuer is incorporated.
Average credit card annual percentage rates (APRs) are just over 17.6%, with the average for bad credit at 25.33%. Even penalty APRs that are charged for missed payments generally stay below 30% – but there's no guarantee.
A vast majority (88%) of respondents were for credit card interest rate caps for all financial institutions. Lower-income consumers were more likely to support a cap than higher-income respondents – understandable since higher APRs put more pressure on lower-income families to avoid higher balances and increased interest charges.
Consumers were split on two of the CARD Act's accomplishments. Consumers were for proof-of-income requirements for credit card applicants under the age of 21. Nevertheless, nearly a quarter (24%) agreed that when someone is sixty days late with a payment on one credit card, that person's other credit card issuers should be able to raise their interest rates regardless of the payment history on the other cards. That practice, known as universal default, was outlawed by the CARD Act. If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.
Are you tempted to give up on credit entirely and switch to debit cards? You probably shouldn't. As Steve Weisman, cybersecurity expert and author of Identity Theft Alert explains, "Due to stronger consumer protection laws for credit card fraud that do not extend to debit card fraud, it is important for people to refrain from using their debit cards for anything other than at ATMs." Federal law limits your liability to $50 on stolen credit cards, but debit cards don't carry the same protection.
You may not understand the CARD Act and what it's done for you but understand how to use credit responsibly – and how to interpret the terms, conditions, fees, and interest rate options for all of your cards. If you aren't sure, today's a great day to learn. You may have been squandering money based on policies you didn't understand and options that you didn't know that you had.
If you want more credit, check out our list of credit card offers.