Two new studies show that the Credit CARD Act of 2009 successfully reformed credit card practices, with one study estimating that the Act is saving households over $20 billion per year in previously-hidden fees. Both studies also found no evidence that lenders restricted credit card lending or increased interest or fees to offset the protections mandated by the Act. These results confirm that regulation of financial products can increase consumer protections and result in substantial savings.
A report published by the Consumer Financial Protection Bureau (CFPB) today looked at data covering 85-90% of the credit card market and found the Act has been successful at eliminating confusing or costly fees and practices. CFPB estimates that just two of the law's provisions—eliminating over-the-limit fees and restrictions on late fees— saved families $4 billion in 2012. The agency's research also found that all-in costs for card holders dropped by approximately 2 percentage points, and that the Act has been successful at stopping lenders from irresponsibly extending credit to borrowers who lacked the ability to repay the loans.
In another recent study of 150 million credit card accounts at eight major U.S. banks, researchers concluded that the Credit CARD Act reduced borrower costs $20.8 billion per year. A significant portion of these savings went to borrowers with the lowest FICO scores, who on average paid fees equal to more than 23% of their account balance prior to the Act. The study also found that lenders did not increase the interest rates or reduce credit limits on new or current accounts after the Act's provisions took effect. And the study reports that credit card lending still provides lenders with financial returns well above those of other products they offer.
"The Credit CARD Act is a textbook example of smart financial regulation," said Sarah Wolff, a senior researcher at CRL. "Borrowers are saving money, and lenders are seeing increased customer satisfaction. But as the CFPB report shows, there are still problems that must be addressed."
Some specific concerns raised by the CFPB in today's report include deceptive marketing of credit card add-on products such as identity theft protection and "fee harvester" cards that carry high application fees. These issues also were cited by CRL in its State of Lending in America report on credit cards published last December, and we are pleased to see CFPB focusing on these as well.
Credit cards are one of the most frequently used financial products, and their impact on the financial standing of U.S. households can be significant—for either better or worse. The Credit CARD Act, and CFPB's new actions, are helping ensure a positive outcome for many families. There's more work to be done, but significant progress has been made.
For more information, contact Ellen Schloemer at 919-539-9092 or email@example.com