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Report: Credit CARD Act of 2009 Good For Consumers

According to the Center for Responsible Lending, the Credit CARD Act of 2009, which designated the Federal Reserve Board to introduce new regulations for the credit card industry, has been successful in increasing transparency for consumers. As a result of the new regulations, the actual interest rates cardholders pay is now closer to the advertised rates. The advertised rates are what you see on credit card applications and sites that include credit card reviews like shizennougyou.

The actual rates that customers end up paying on their debt differ from these rates for a variety of reasons. If a borrower goes into default, the interest rate will increase. Credit card issuers can still change rates after a customer enrolls, but only on new charges. Furthermore, balance transfers and cash advances affect the actual overall interest rates customers pay.

Before the Federal Reserve decided on the new regulations, the gap between advertised and actual rates had been increasing. Also, according to the Center for Responsible Lending, the data show that actual overall credit card interest rates have not increased as a result of the Credit CARD Act (after taking into account economic conditions). The credit card industry has claimed that the new regulations have increased costs for consumers, but that does not seem to be the case. From the report’s summary:

Contrary to credit card industry claims, the new rules have not caused prices to increase or access to credit to fall. Instead, they have benefitted the public by making credit card pricing significantly more transparent. Price transparency is likely to lower costs long term by spurring competition and making it harder for issuers to manipulate or arbitrarily raise prices.

The Center for Responsible Lending looked at data from the Federal Reserve, corporate financial filings from the credit card companies, and The study also looks at the amount of direct mail sent to consumers and determined that there has not been a decrease in credit available to consumers as a result of the Credit CARD Act, again disagreeing with claims from the credit card industry.

Photo: Håkan Dahlström
Center for Responsible Lending [pdf]

Published or updated June 10, 2011.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar 1 Anonymous

Both sides seem to be manipulating these data to support their own case. Obviously transparency is better for all but there’s no guarantee competition will lower rates or cost. That’s a leap of faith I’m unable to make. Credit Card solicitation does not mean credit is available on a broad scale as implied. It’s more likely that pre-screening requirements have increased thus more people with good credit are getting offers while those with more marginal credit see a lack of availability. As always a credit card is a great way to spend your money but one of the worst ways to borrow money! Interest rates should be irrelevant to the prudent consumer.

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avatar 2 wylerassociate

I’m glad the CARD Act was passed by the president for 2 reasons: 1) the card statements now are more transparent by telling you how long it would take to pay off the balance in 20-30 years. 2) americans are starting to reduce their credit card debt and get out of debt which is a great thing.

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avatar 3 skylog

no matter what else come out of the act, improved statements are a good thing. some people already have an idea how much damage interest can do, but there is no doubt that having everything out there will help many people.

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avatar 4 Anonymous

Instead of offering credit cards, let’s offer people education to spend less than they earn, put the surplus into savings, and build an emergency fund so that they don’t need a credit card.

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avatar 5 shellye

The CARD act is a good educational tool for consumers, in that it shows how long it will take to pay off the balance if just the minimum payments are made, which can motivate even the least diligent consumer to get it paid off. There’s nothing like the financial freedom that comes with having no credit card payments. More consumers need to experience just a taste of it.

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avatar 6 Will @

Whichever way the numbers are stated, you can’t deny that some interactions with appear to be more transparent (even if still misleading or hidden).

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avatar 7 lynn

The Credit Card act was passed utilizing all three branches of government- the president being only one of those (branches).

This senario, all of the hype, has taught me that no one can truly guesstimate what results will be from any change. we are a flexible people and find ways to make things work for us as a whole.

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avatar 8 Anonymous

Credit card companies are still going to find ways to make the money they want to make, they just might have to get a little creative at it. While I agree that making these companies more transparent is a good thing, the more legislation that’s lobbed their way will more than likely only create more opportunities for loopholes and unintended consequences. The only real way to combat this is by simply educating people about credit and debt in general.

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avatar 9 Luke Landes

More education is always a good thing, I agree.

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avatar 10 qixx

So when is this increase of competition going to come along. The credit card scene seems to just be more of the same as before. I do like the new statements. But the people i know that needed the changes don’t look at their statements and tend to just pay minimums on these accounts. Now if only the CARD Act required people to look at these new statements.

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