Poll: On eve of credit card reform, few understand what new law holds
2 in 3 don't know law's protections phase in this month
Less than two weeks before sweeping new protections for
credit cardholders take effect, vast numbers of American consumers do not have
a clear understanding of what the new rules will or will not address, according
to survey results released Tuesday.
At the same time, however, most consumers do have a
general awareness that changes are coming to the terms of their credit cards,
and they are taking steps to protect themselves against any negative
Fuzzy awareness of new card law
The survey, conducted for the Consumer Federation of
America and the Credit Union National Association, found that 61 percent of
those surveyed know that new protections are on the horizon -- but 65 percent don't
know that they take effect this month.
In addition, significant numbers of consumers are not
aware of some of the most important elements of the new package of rules.
Worse, many people are making erroneous assumptions about what the new rules do
For instance, 42 percent of the survey respondents wrongly
believe that the law flatly and completely prohibits interest rate hikes on one card because of the
customer's payment history on another card, 36 percent wrongly believe that
late fees will be limited to $35, and 31 percent wrongly believe that interest
rates are capped at 20 percent.
"This lack of awareness can
be costly, for example, for a cardholder carrying a balance that contains a 30
percent penalty interest rate, thinking that rate is capped at 20
percent," said Stephen Brobeck, executive director of the Consumer
Federation of America.
To be sure, many consumers will be well served by most of
the protections -- mandated by last year's Credit Card Accountability,
Responsibility and Disclosure Act (the Credit CARD Act) -- that go into effect
on Monday, Feb. 22.
biggest winners are those consumers who carry balances from month to month, and
they tend to be people from households with moderate incomes and insecure
employment," Brobeck said. "So this is very, very helpful to the
people in that category.
everyone benefits from this," he said.
Credit CARD act provisions
Among those new rules:
Consumers must be given 45 days' notice of any changes in the interest
rates of future balances or in other key terms of a credit card account.
Hikes in the interest rates of existing balances are
generally prohibited. Exceptions: If a promotional rate expires, if the
cardholder makes a late payment, or if the contracted rate was variable. That
last one -- a variable interest rate -- is a key loophole that many credit card
issuers have been exploiting by changing consumers to variable rate cards prior to
Consumers have the right to "opt out" of
significant changes that might be imposed on their accounts. To do so, they
merely have to close their accounts and pay off the existing balances within
Limitations are imposed on the issuance of credit cards to anyone under the age of 21.
Customers who maintain monthly balances must be told how long
it will take to pay off that balance if they make only the minimum monthly
Bills must be mailed at least 21 days before payment is due.
According to the survey, though six in 10 consumers
knew that some package of protections was coming, fewer than half were aware of
two other important components of the CARD act:
issuers must apply any payments to balances carrying the highest interest
rates first, and issuers cannot impose over-the-limit fees unless customers
specifically authorize such transactions.
is significant awareness by consumers that changes are afoot. They
may be spotty on the details, but their antennas certainly are up.
Credit Union National Association
is significant awareness by consumers that changes are afoot," said Bill
Hampel, chief economist for the credit union group. "They
may be spotty on the details, but their antennas certainly are up."
So much so
that 85 percent of the credit card users who reported noticing a recent change
in the terms of their card are taking or planning action based on that
notification. Nearly 70 percent of those customers say they will use the card
less frequently. Sixty-two percent said they would try to pay off the balance
sense to experts such as Hampel.
hands on deck," he said. "Get your credit card debt as low as
possible. That's always the best defense."
The CFA/CUNA survey of 1,103 American adults was
conducted between Jan. 29 and Jan. 31 by Opinion Research Corp. The margin of
error is plus or minus 3 percentage points.
See related: Credit card reform arrives in form of new law, Interactive guide to the Credit CARD Act
Published: February 9, 2010