While the CARD Act instituted what many considered necessary product reforms to protect the interests of cardholders, an unintended outcome may have been a higher overall cost to consumers.Based on an analysis of CardRatings.com data, the biggest cost may have been added interest costs to consumers.
From the end of 2008 through late 2011, the prime bank rate was unchanged, and mortgage rates fell. Credit card rates, on the other hand, rose. The CardRatings.com study found that annual percentage rates on new credit card offers rose by an average of 2.1 percent over that period. While these higher rates wouldn’t have immediately affected existing customers, over time this new rate environment would start to affect more and more balances. Based on roughly $800 billion in outstanding U.S. credit card debt over much of the past two years, this 2.1-percent increase in credit card rates would translate to an annual additional consumer cost of $16.8 billion.
The study also points out that riskier cardholders were most affected by rate increases, as well as those who wish to take advantage of balance transfer offers, but now pay higher fees for the privilege. There is also a fairness issue that is highlighted by the study:
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 credit card holders. 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.