A study by the Pew Report, “Two Steps Forward: After the Credit CARD Act, Cards are Safer and More Transparent – But Challenges Remain” finds that the Credit CARD Act, enacted last year, has stopped many of the credit card practices deemed unfair or deceptive by the Federal Reserve. The study examined credit cards from the top largest banks and credit unions in the nation, with combined control of 90% of the nation’s outstanding credit card debt. Data was collected in March on approximately 450 credit cards to measure the current landscape of consumer credit cards since the passage of the Credit CARD Act.

But as with other attempts to reign in questionable practices, some problems remain and others are emerging that could continue to cost consumers. Disproportionate penalties and fees, unfair payment allocations and hikes in interest rates on existing balances have been effectively eliminated. But in response to lower profits, credit card companies have increased cash advance fees, continued charging other penalty interest rates and are even beginning to withold penalty interest rates in their online terms and conditions. The findings include:

  • Elimination of unfair penalties, unilateral interest rate hikes, unfair payment allocations.
  • Over-the-limit fees require consent.
  • Fewer mandatory arbitration clauses in credit card agreements.
  • Minimal change in annual fees, one area predicted to increase after the CARD Act went into effect.
  • Surcharge fees for cash advances and transfers rose by one-third at banks and by one-quarter at credit unions.

“While it’s been less than a year since passage of the Credit CARD Act, the new law appears to be working for millions of Americans who have credit cards,” said Shelley A. Hearne, managing director of the Pew Health Group. “The elimination of most of the ‘unfair’ or ‘deceptive’ practices of the credit industry since we last surveyed the marketplace marks a major milestone in the move to make credit cards safer, transparent and more fair for consumers. Most of the news is good, but we are seeing the rise of new harmful behavior.”

“Although we applaud changes by the card industry to create a fairer and more transparent marketplace, our research shows that some challenges remain,” said Nick Bourke, director of Pew’s Safe Credit Cards Project and report co-author. “For the first time, we have seen credit card disclosures warning consumers that interest rates could go up as a penalty for certain actions, but not stating how high those rates could go. Federal regulators should pay attention to this problematic new trend. When issuers withhold vital pricing information, it leaves cardholders in the dark and puts their financial security at risk, which is why federal regulations have long required issuers to disclose their rates and fees up front.”

Policy recommendations in the report include:

  • Enforce existing regulations requiring full and reliable disclosure of penalty rates.
  • Prohibit issuers from charging penalty interest rates that are higher than initially disclosed when the account was opened.

Full details, including previous research, can be found at www.pewtrusts.org/creditcards.

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