Bankers' group: CARD Act raised rates, lowered credit access
Law also improved transparency, group says on its 3rd anniversary
The Credit CARD Act has
caused higher interest rates and lower availability of cards -- especially for
new users and people trying to re-establish their credit, the American Bankers
Association said Feb. 19 in a comment letter filed with the Consumer Financial
"While the CARD Act has provided clear and significant benefits to consumers, there have also been significant trade-offs, specifically, higher costs and less availability for credit card credit," the lobby group for banks said in the letter, signed by ABA
Senior Vice President Nessa Feddis.
Those benefits include the
near elimination of surprise rate hikes and a rollback of late fees and over-limit fees,
the ABA said.
|Credit card issuers increased card rates before and right after the passage of the CARD Act, according to national average rates compiled by CreditCards.com.
Enacted in May 2009, the
Credit Card Accountability Responsibility and Disclosure Act's major provisions
took effect Feb. 22, 2010, three years ago Friday. The consumer bureau is
taking comments -- some of which contradict the ABA's
findings -- for a study on the consumer protection law's results.
A pullback in subprime cards
may be forcing more people into higher-cost forms of credit such as payday
loans, the ABA
Although the financial
crisis and subsequent recession also hit since the law took effect, "economic
conditions alone can't explain the changes we've seen in the credit card
Chief Counsel Kenneth Clayton said in a news release that accompanied the association's filing.
Since late 2008, when
lenders began anticipating the CARD Act, rates for home and auto loans have
fallen sharply while credit card rates have risen about three-quarters of a
percentage point, the association said, citing an analysis by Argus Information
and Advisory Services.
However, other analyses show
a different picture. Looking at Federal
Reserve figures, a study by the Center for Responsible
Lending found that card interest rates initially rose, but then returned to
about pre-CARD Act levels.
In addition, mortgage rates
have benefited from federal economic programs to keep rates low and bolster the
While the CARD Act has provided clear and significant benefits to consumers, there have also been significant trade-offs, specifically, higher costs and less availability for credit card credit.
|-- Nedda Feddis
American Bankers Association
Feddis said that the wide spread between rates on card
loans -- at about 14.5 percent for mature accounts -- and other types of
consumer credit raises the question of whether the CARD Act was a factor. Auto loan rates are down about 2 percentage
points and mortgages more than 2.5 points, the association said in its comment
letter. Card rates should have fallen too, Feddis said, since the risk of card
lending has declined as subprime customers were dropped.
So what is the CARD Act's bottom
line for consumers? "It depends on who you are," Feddis said. "When
their limit is lowered or their account is closed, people get very upset."
The banking group isn't arguing to roll back the law, but is
recommending caution to examine unintended consequences before any further
consumer protection measures, she added.
See related: A guide to the CARD Act of 2009
, Consumer bureau reviews credit card law
Published: February 19, 2013