Since its passage in 2009, in the wake of the financial crisis, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act has been responsible for saving consumers big money. How big? According to a new report from the Consumer Financial Protection Bureau (CFPB), the CARD Act and other CFPB regulations and actions have saved consumers $20 billion in credit card related fees from 2011 through 2014.
Credit Card Regulations Save Consumers Billions
CFPB assumed responsibility for tracking credit card data and evaluating the CARD Act after its inception in July 2011. Over the evaluation period, CFPB analyzed between 85% to 90% of credit cards by assessing the fees and comparing them to previous baselines. They found savings across multiple categories of fees.
The CARD Act did not ban any credit card fees. Instead, it regulated the conditions under which those fees apply, especially with respect to back-end penalty charges.
- Overlimit Fees – Overlimit fees are penalty charges incurred when you place a charge that puts you over your pre-determined credit limit. Instead of rejecting the purchase, card companies generally allowed the purchase, but charged you a penalty fee for the convenience. Average penalty fees in 2008 were nearing $35.
The CARD Act cleverly switched the approval back to consumers by making credit card companies charge a fee for processing transactions over the credit limit, and that any overlimit fees be "reasonable and proportional" to the amount charged beyond the limit. Suddenly, overlimit fees became harder to impose and less economical.
In 2008, approximately 16% of accounts incurred at least one charge beyond the limits, and almost 50% of those accounts were assessed an overlimit fee. The new rules effectively eliminated overlimit fees, saving $9 billion compared to the fees that would have been incurred without the CARD Act.
- Late Fees – Accounts are charged late fees if the cardholders do not make at least the minimum monthly payment by the due date. The CARD Act made multiple adjustments to late fees. Cutoff times on the due date cannot be earlier than 5 pm. Statements must be mailed at least 21 days before the due date, the due date must be the same day in each month, and statements must contain clear warnings about late fees. Most importantly, like the overlimit fee, late fees must be reasonable and proportional.
Average late fees dropped from nearly $35 to around $27. This difference in the average fee resulted in $7 billion in fee savings.
- Other Fees – Add-on fees for things like debt cancellation or suspension, balance transfer fees, and cash advance fees have been addressed in multiple ways, not just via the CARD Act. In particular, deceptive practices with respect to add-on fees have been identified and corrected. Approximately $2 billion in refunds have been supplied to consumers as a result.
Fees in this category tend to be the same amount as before, but their incidence has gone down considerably, saving consumers $4 billion.
The CFPB is proud of these accomplishments, but noted that there are still areas of concern that need to be addressed. Harassing behavior from debt collectors and inaccuracy from some of the third party collectors is on the CFPB's radar. Card companies that specialize in the higher-risk subprime borrower are making over half of their revenue through fees. Confusing and misleading promotional deals are sticking consumers with programs that they do not fully understand, such as deferred interest promotions that can charge retroactive interest against missed payments. We look forward to reading about billions more in future savings as CFPB addresses these topics.
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