Tuesday, May 17, 2011

Consumer Reforms Work-Credit CARd Act saves money and helps consumers

A new report from the Pew Center  makes clear that the Credit Card Act of 2009 has been a strong success for consumers, saving us billions in late and penalty fees as it prevents unfair rate hikes and other deceptive practices. You can see Pew’s findings and report here:  http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Credit_Cards/Report_Equilibrium_web.pdf  Pew’s  findings offer an important reminder that well-designed reforms can protect consumer interests, make markets more transparent and earn a level of public support that allows them to endure shifts in the political winds.
The Credit Card Act protects consumers by limiting when credit card companies can raise rates on existing balances, banning “unfair and deceptive” practices and requiring late fees and  penalty fees to be “reasonable and proportional.” When the law passed in 2009, critics charged that credit card companies would have to raise interest rates and annual fees on cards sharply and deny credit to many consumers to make up for the limits on penalty fees the law imposed. Two years later, Pew’s data shows that the critics were wrong.
Interest rates and the percentage of cards charging an annual fee did rise slightly after the law was passed (increases that likely have as much to do with the credit crunch caused by the financial crisis of 2008-2009 as the reform bill itself). But those rate hikes were modest and the interest rates and annual fees charged by credit card companies appear to have now stabilized again. 
At the same time, consumers are now paying much less in late and penalty fees as a result of the reform law. Since the Federal Reserve last year issued rules to enforce the credit card reform act that limit late fees to $25 to $35, the average amount late fees cost consumers has fallen sharply. Only 11 percent of bank credit cards now charge overlimit penalty fees (down from 23 percent in 2010 and 80 percent before the reform bill was passed in 2009). 
Nick Bourke, director of Pew’s Safe Credit Cards Project, sees strong evidence of the reform bill’s success: “The Act created a new equilibrium where interest rates have flattened, penalty charges have declined and a number of practices deemed ‘unfair or deceptive’ have disappeared,” he concludes.
Sen. Mark Udall of Colorado, Rep. Carolyn Maloney of New York and other participants in the panel on the new law the Pew Center sponsored on Capitol Hill w law last week also stressed that the credit card reform bill has been such a success for consumers that even the House Republicans trying to eviscerate the Consumer Financial Protection Bureau and other important consumer reforms passed by the last two Congresses show no interest in seeking to reverse the Credit Card law.
The moral of the story, they suggested, is that once effective consumer reforms are in place, they become so popular with consumers that there is little political appetite for trying to roll them back. 
That’s a lesson worth remembering as we work to get the Consumer Financial Protection Bureau off the ground and give the other important consumer reforms Congress passed between 2007 and 2010 the chance to work.


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