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CFPB Finds Card Act Helped Consumers Avoid $16B+ in Gotcha Credit Card Fees
Friday, December 4, 2015 6:45 AM

Concerns Remain About Other Back-End Practices Such As Deferred-Interest Promotions

The Consumer Financial Protection Bureau on Wednesday released a report detailing how the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) has helped reduce the cost of “gotcha” credit card fees by more than $16 billion. Since the reform law, total costs to consumers have fallen with the elimination of certain back-end pricing practices such as over-limit fees.

Over the same period, credit has generally become more available to consumers and the number of new accounts has grown faster than in almost every other major consumer credit market. Concerns remain, however, about other back-end practices such as deferred-interest promotions that can hit consumers with unexpected costs.

“The CARD Act has helped people avoid more than $16 billion in gotcha credit card fees,” said CFPB Director Richard Cordray. “The law made it easier for consumers to evaluate costs and risks by eliminating the worst back-end pricing practices in the market. There is more work to do. But with commonsense rules in place, credit cards are safer and more affordable, credit is more available, and companies remain profitable with improved customer satisfaction.”

More than 60 percent of adults own at least one credit card account. In the first six months of 2015, more than 14.5 billion credit card transactions accounted for more than $1.4 trillion in purchase volume. Before the CARD Act, widespread back-end pricing practices racked up costs for consumers through hidden fees and other gotchas. Signed into law in May 2009, the CARD Act created a fairer and more transparent market by protecting consumers against unexpected interest-rate hikes, excessive late fees, and hard-to-avoid over-limit fees. The CFPB assumed authority for the CARD Act in July 2011.

Wednesday's report finds that, generally, consumers are paying less for their credit cards than they did before the law, and those costs are easier to predict before they are incurred. In addition, credit availability has continued to expand for consumers. Specifically, the report found that since the CARD Act:

  • Consumers have avoided more than $9 billion in over-limit fees.
  • Consumers have saved more than $7 billion in late fees.
  • Total cost of credit is roughly 2 percentage points lower than before the CARD Act.
  • Available credit has increased 10 percent since 2012.
  • More than 100 million credit card accounts were opened in 2014.
  • More than 100 million credit card accounts offer consumers free access to their credit scores.

Risky Practices Remain a Concern

While the CARD Act addressed many problematic practices in the market, the CFPB has outstanding areas of concern from the report, including:

  • Deferred-interest promotions can hit consumers with back-end pricing.
  • Subprime credit card companies charge much more for credit.
  • Rewards programs have obscure and incomplete terms and conditions.
  • Debt collection practices pose risks to consumers.
  • Some agreements are still long and complex.

Read the full report on the consumer credit card market.