Today is the second anniversary of my Credit CARD Act--introduced as the "Credit Cardholders Bill of Rights"-- being signed into law by President Obama on May 22, 2009.
As it has taken effect in stages in the two years since signing, consumers have reaped significant benefits from its provisions, among them: a ban on retroactive interest rate hikes on existing balances, enough advance notice of rate hikes on new purchases going forward to allow time to shop for a better rate, and requiring penalty fees to be proportionate to actual cost of the infraction.
Passing the CARD Act was not easy. Even with the widespread credit card horror stories from consumers, it took years of effort--meetings, reports, and hearings--to overcome the objections of the card industry and build a consensus for passage in Congress. It also took the election of Barack Obama, who campaigned on a Credit Cardholders' Bill of Rights.
Contrary to those dire "sky-is-falling" predictions, The Pew Safe Credit Cards Project reports that card interest rates have held steady, as have annual card fees, and over-limit penalty fees have all but vanished--from over 80% of bank-issued credit cards in 2009, to just 11% in 2011.
The Center for Responsible Lending (CRL) reports that after years of a widening gap between the stated rate on credit card solicitations and the actual rate consumers paid, this gap narrowed markedly in the wake of the Credit CARD Act reforms, with stated prices on solicitations moving much closer to actual prices. CRL also found that actual prices have remained stable and available credit has not tightened beyond what would be expected from the economic downturn.
USA Today estimated that in just the first year of the CARD Act, consumers have saved an estimated $5 billion in bank fees.
All of these results add up to one thing: the CARD Act has largely accomplished what it set out to do. It has leveled the playing field between consumers and banks, increased price transparency so that consumers can shop around, and reduced the tricks that trap consumers in a never-ending cycle of debt.
As Pam Banks, senior policy counsel at Consumers Union has said, "The CARD Act has made a big difference by putting an end to some of the bait and switch tactics that unfairly trap credit card consumers in high interest debt. Thanks to the new law, consumers stand a much better chance of avoiding the credit card 'gotchas'."
These outcomes of the CARD Act give lie to the equally dire predictions about the Consumer Financial Protection Bureau (CFPB) that began last year-- as Congress passed the Dodd-Frank reforms that established the CFPB-- and have become a drumbeat in the new Congress.
It's easy to predict doom from the unknown. But Congress should ignore those with self-interested objections to the CFPB-- just as we did with the CARD Act-- and allow the new Bureau, with a single Director, the opportunity to open for business on schedule July 21.
Once the CFPB practices and benefits become known, the industry--and Members of Congress--will realize that there wasn't that much to be scared of. Removing fraud and bad practices from the marketplace allows markets to work better, not worse. And that's good for everyone.