Considering the benefits

At the same time, there have been some benefits to the CARD Act:

  • Fewer late fees. The CARD Act required that billing cycles be standardized, and that customers are given at least 21 days to pay a credit card bill. In one snapshot comparison, the Consumer Financial Protection Bureau found that between January and November 2010 monthly late fees had dropped by $474 million. This suggests that consumers may be paying around $5 billion less in late fees every year than before the CARD Act.
  • Fewer over-the-limit fees. Similar to overdraft fees on your checking account, over-the-limit fees are charged if you exceed your credit limit. The CARD Act banned credit card companies from charging this type of fee unless you expressly opt into the program. If you don't opt in, transactions that would exceed your credit limit are simply denied. Since the new law, many credit card companies have backed away from over-the-limit fees: Only 40% of credit card offers feature those fees now, compared with 95% before the CARD Act.
  • Lower over-the-limit fees. Perhaps because credit card companies now have to persuade you to opt in on fees for exceeding the credit limit, those fees have become more competitive. CardRatings.com found that the average maximum over-the-limit fee is now about $14, down from $33 in late 2008.

Advocates of the CARD Act would claim one other benefit: that the law has limited the circumstances under which interest rates can be raised in reaction to economic events, your payment history and your changing credit status. However, if credit card companies have responded by raising rates in advance and across the board, it hardly seems that consumers are better off.

Shifting the burden among credit cardholders

At this point, it is impossible to tell how much the lower fees in some areas are counteracted by higher fees in others as a result of the CARD Act, but the 800-pound gorilla in the discussion is the $16.8 billion potential added annual cost due to higher interest rates.

Besides the likelihood of a higher overall cost, one thing the CARD Act has clearly done is shift the way the cost burden is distributed among cardholders. By protecting cardholders who are late with payments or have credit problems, the CARD Act seems to have caused cardholders in general, including customers with excellent credit, to pay higher interest rates.

But wait, there's more. The implications of the CARD Act go beyond the reach of that particular law. The CARD Act was followed a year later by the Dodd-Frank financial reforms, which included a variety of regulations addressing checking account fees. The similarity is that both have produced some unintended consequences. The consistent theme is that when regulators micromanage the banking business to benefit certain customers, the outcome seems to be higher costs for everyone.

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