US report: CARD Act saved consumers $16 billion

Surprise fees are down, but some 'gotchas' remain, says CFPB


Report: Credit card market still fraught with pitfalls
Report: Credit card market still fraught with pitfalls

Credit card users have saved more than $16 billion under the reforms of the Credit CARD Act of 2009 -- but some cards still have traps that spring surprise costs on the unwary.

That's the conclusion of the U.S. Consumer Financial Protection Bureau's report Thursday on the 6-year-old law.

Before the law, "Companies could drive up the actual cost of credit cards by hitting consumers with expensive and unexpected fees," CFPB Director Richard Cordray said, according to a prepared text of remarks to be delivered Thursday.

Act limited fees
According to the report, the biggest savings have come from the law's restrictions on over-limit and late fees.

Over-limit fees have been driven to the point of extinction by the law's requirement that consumers agree to them in advance. Previously, over-limit fees were automatically imposed by card issuers. Given a choice, consumers opted out. That saved $9 billion, the CFPB reports.

Late fees declined 20 percent since the law required they be "reasonable and proportional" to the offense. Had those limits not been imposed, consumers would have paid an additional $7 billion, the report estimates.

While the costs of cards are more predictable, "gotcha" practices remain, led by deferred interest promotions that can hit users with months of built-up interest.

"There is more work to do," Cordray said.

CARD Act's arrival
The Credit Card Accountability, Responsibility and Disclosure Act was signed by President Obama May 22, 2009, and its main elements took effect in 2010 and 2011. Consumer advocates hailed protections from fees and retroactive rate increases, while banking groups warned that the rules would restrict the flow of credit to borrowers.

The law arrived on the heels of the Great Recession, making it hard to separate the effects of the two events. While credit did indeed tighten during the recession, the report found that cards are more available today than before the law. The issuance of new cards plunged during the recession, but the 100 million-plus accounts opened in 2014 surpassed the total in 2007, the CFPB found, with subprime applicants sharing in the increase. However, credit limits on new cards have tightened for all but the most creditworthy, the report found.

Bankers: Law's effect mixed
The American Bankers Association said that the benefits of the law are mixed with unexpected penalties.

"While many features of the CARD Act provide consumer benefits, other parts of the law have led to negative, unintended consequences," ABA Vice President Nessa Feddis said in an emailed statement. "As the CFPB's own study found, credit card interest rates have increased since the CARD Act, raising the cost for those who manage their credit well."

Remaining problems
The consumer bureau studies the credit card market every two years to measure the cost and availability of cards and the transparency of card terms. The 2015 report noted that consumer satisfaction with cards is up and card profits are robust, while highlighting several remaining problems for card users:

  • Deferred interest promotions. Deals that offer 0-percent interest for a set period are "the most glaring exception to the general post-CARD Act trend toward upfront credit card pricing," the report said. About three-quarters of consumers who opted for six- and 12-month promotions that began in 2013 failed to pay off their purchase by the deadline, triggering built-up interest charges. Interest charges are typically 25 percent, and most of the costs hit people with subprime credit scores.
  • Rewards programs. The highly popular programs for points, miles or cash back come with an array of ins and outs, but consumers may not receive key terms of the programs until after they enroll. Problems collecting sign-up bonuses were the biggest source of complaints about rewards.
  • Debt collection practices. Complaints about debt collection agencies often involve credit card debt. The CFPB found numerous problems with conduct of third-party collectors, "including the accuracy and completeness of their information."

The CFPB gets data on card costs at the account level from banks that make up about 90 percent of the card market. It also collects a sample of credit report data, plus special information requested from large card issuers concerning applications, approvals and debt collection practices, among other topics.

 The 2015 report adds insights about consumer card use to the analysis of the CARD Act, showing how deeply cards remain ingrained in consumers' financial lives.

More than 60 percent of U.S. adults have at least one credit card, racking up $1.4 trillion in purchases in the first half of 2015, the CFPB said. Rewards cards have become ubiquitous, accounting for 80 percent of card spending in 2014.

Of cardholders, 62 percent have" superprime" FICO credit scores at 720 or above, 17 percent are in the prime range of 660 to 719, and 20 percent have subprime scores below 660.

 "A market where people can better understand costs and pricing allows them to spend their money more appropriately," Cordray said in the prepared remarks. Cutting out fee traps has resulted in a 2 percentage point reduction in the overall cost of credit, which includes interest and fees, the report found. The lower cost equals the result found in the agency's 2013 study of the card market, indicating that the savings are holding steady.

About 9 percent of cardholders make only minimum payments most months, while another 20 percent pay slightly more than the minimum, the report found. At the other end of the scale, 25 percent normally pay their full balance. The remaining 44 percent of "mixed payers," the largest group, fall somewhere in between.

  2008 2015

Average late fee

$33  $27
Incidence of late fee (open accounts) 25.5%  20%
Incidence of annual fee (open accounts) 3%  3%
Incidence of other fees (debt suspension, balance transfer, cash advance) 24%  <10%
Incidence of over limit fees (when account over limit) 49%
Interest rates on accounts charged interest 2008 2015
Superprime 9.5%  11.0%
Prime 13%  14.0%
Core subprime 16%  16%
Deep subprime 19%  16.5%
All 13%  13%
Approval rates for general purpose cards — major issuers
2007 2014
Superprime 92%  91%
Prime 79%  76%
Subprime 23%  27%
All scored consumers
56%  55%
Average size of new lines 2008 2015
Superprime $8,500  $8,600
Prime $4,500  $3,700
Core subprime $2,000  $1,600
Deep subprime $800  $700
All $5,900  $5,700
Source: CFPB CARD Act Report 2015
Superprime, FICO 720 or above;
Prime, 660-719;
Core subprime, 620-659;
Deep subprime, below 620.
Figures are rounded.
See related: CFPB CARD Act report 2013Credit CARD Act

Published: December 2, 2015

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