CARD Act 5 Years Later: Can You Handle the Credit?

It’s been about five years since the Credit CARD Act of 2009 was signed into law.

Over the last few years, changes resulting from the CARD Act have helped consumers pay less in fees, and better understand their credit card statements, and how much credit is costing them.

Positive changes have resulted in consumers that are more educated about the cost of credit, as well as consumers that are no longer subject to the whims of credit issuers.

Advantages of the Credit CARD Act

For consumers, some of the biggest advantages have come in the form of restrictions on the way that credit issuers can charge them fees.

Here are some of the changes resulting from the Credit CARD Act:

Detailed description of the cost of credit:

One of the biggest changes is the way that creditors report information on credit card statements.  In the past, creditors simply listed the amount of interest paid that period in a list of charges, and asked for the minimum payment.

The cost of only paying the minimum was glossed over.

Now credit card issuers have to provide information about how long it will take to pay off the card with only the minimum paid (hint: it’s a long time).  Creditors also have to disclose the total amount paid over this period.  Additionally, credit card issuers have to let consumers know how much they will save if they pay off their card in three years, and provide the payment amount to make it happen.

This educates consumers, and many of them are now paying off their debt faster since they are armed with this information.

Lower fees:

credit_card_back_pocketThe way that creditors charge late fees and over the limit fees have changed.

Late fees have been slashed, and consumers have to engage in certain activities to be charged a late fee.  On top of that, over the limit fees have been eliminated — unless the consumer has specifically opted in to allow for charges beyond the credit limit.  So, if a creditor allows these charges without the consumer’s consent, then the creditor can’t charge late fees.

The restrictions on these fees have resulted in lower costs for consumers, and allowed them to pay off their debts faster, since they don’t have to worry about large portions of their payment going toward fees.

Interest rate changes:

Now, credit card issuers have to apply the payment to the balance with the highest rate, reducing the amount that consumers pay.

There was a time years ago when I had a lot of credit card debt.  I started to take this debt seriously and was working hard to pay it off.  I called up one of my cards to ask if they could lower the rate.  They say my recent history was good and agreed to lower the rate.  Yay!!  Right?  Well, back then the new rate only applied to new purchases.  All my old debt was still accruing interest against it at the higher rate.  That sucked!  Long story short, thanks to the CARD Act this rate disparity doesn’t happen anymore.

Additionally, rates can’t be raised on an existing balance unless a consumer misses two payments in a row.  Rate increases on new balances require notification of 45 days.  And,the consumer has the option to reject the rate increase and pay off the balance at the current rate (although it means closing the account).

These changes save consumers money, and it allows them to make more informed decisions about how they tackle their credit card debt.

Issues with Business Cards

While there are protections in place for individual consumers, the Credit CARD Act is still a bit lacking when it comes to business cards.

The protections on interest rate and fees don’t apply to business cards.  This means that if you get a credit card for your business, the card issuer can still raise interest rates willy-nilly, and charge certain fees.

For many small business owners and solopreneurs, this is a problem.

It means that they are subject to higher costs, and there have been fears that credit issuers will try to make up for losses with individual card holders by raising costs on business card customers.

Some advocates call for expanding CARD Act protections to include business cards, but the call isn’t getting much traction.

Difficulties Qualifying for Credit

One of the realities of the Credit CARD Act, though, is that it makes it a little harder for certain consumers to qualify for credit cards.

Originally, the CARD Act required that a consumer’s assets had to be considered, which meant that non-working spouses ended up unable to qualify for credit.  Without being able to consider household income, it was hard for stay at home partners to build credit.  The Consumer Financial Protection Bureau changed things up in 2013, though.

Now, a stay at home spouse can use his or her partner’s income during the application process.

Even so, credit card issuers still have to make sure that the household can handle the debt load.  It’s a little easier for non-working spouses to qualify, but it’s still not a full-proof system, and you still have to be careful not to overextend yourself when it comes to credit.

Another reality is that the CARD Act makes it harder for college students to qualify — and the CFPB has done little to change that reality.  Those who are under 21 need to show that they have adequate income in order to qualify for a credit card without a cosigner.  College students can’t use their parents’ income as a way to qualify for cards.  They have to use their own.  If they don’t have adequate income, they need a cosigner.

The CFPB does allow for those who are over 21 to cite a third-party income source, but the applicant has to be able to show that there is reasonable access to this source of income so that he or she can pay the bills.

The whole point of these moves is to restrict access to those who may not be able to repay the debt. One of the problems facing many consumers is the fact that they can’t afford what they have in debt. By restricting how much credit they can access, it reduces the chances of problems down the road, especially if there isn’t the income to back up the bills.

When you think of it this makes sense, doesn’t it?

We’ve had a lot of easy credit in this country the past decade or so and it hasn’t always helped people.  Putting some restrictions on credit helps us from going overboard in debt.

Final Word On How the CARD Act Has Affected Us

No matter your situation, it makes sense to think through your credit choices.

Before you apply for a credit card, look at your finances and determine whether or not it makes sense for you.  Can you afford the credit?  Do you use it responsibly?  Will you be able to pay off what you borrow each month?

Card cards can be wonderful tools but they can always weigh you down in debt.

The CARD Act goes a long way toward forcing consumers to think through their choices, but it’s still possible to overextend yourself and wind up in trouble.



Published or updated March 24, 2014.

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