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The Credit CARD Act turns one

One year ago many provisions of the Credit CARD Act took effect. To mark this occasion, the CFPB held a conference to examine what has happened in the past year in the credit card market. Here’s what we learned.

First, the law has brought about some important changes for consumers. For example, a study prepared by the Office of the Comptroller of the Currency indicates that prior to the Act, card issuers increased the interest rate on approximately 15 percent of accounts each year. Now, only about 2 percent of accounts experience rate increases. The amount of late fees has dropped by more than 50 percent since the Act was enacted, and overlimit fees have essentially disappeared.

There is another side of the coin. To achieve greater transparency and eliminate more hidden costs, the initial interest rates today appear to be higher than they were a year or two ago. In other words, the cost is clearer up front. Significantly, the total amount consumers are paying for their credit cards is no higher, on average, than it was one, two, or three years ago.

During the recession, credit card issuers tightened their standards for approving an application and reduced the amount of credit they made available. Over the past year, as the economy has improved, many credit card issuers have loosened their criteria for signing up new customers. Nonetheless, credit standards still appear to be tighter than they were two or three years ago. We do not yet know what the “new normal” will look like or whether less creditworthy consumers will continue to find it more difficult to obtain a credit card.

There are important challenges facing the CFPB when it comes to credit cards. We need to be vigilant in assuring that card issuers live up to their legal obligations and do not try to find loopholes to exploit. We also know that there’s more work to be done to make sure that consumers are able to understand the costs, benefits, and risks of different cards, and to compare them straight up. We need to continue to deepen our understanding of the consequences of the CARD Act for consumers and the credit card market.

David Silberman is the CFPB Assistant Director for Card Markets.

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