The CFPB has put together an assessment of the impact that the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act had on the financial industry, six years after it was passed. According to the CFPB’s report, some areas of credit card product design and usage have improved for consumers while other areas continue to be problematic.
Areas of improvement include the cost of credit and increasingly valuable rewards.
“Consumers “continue to pay less in fees, both absolutely and relative to their balances, than before the implementation of the CARD Act,” the report says. Some card issuers have actually begun to compete based on their late fees1. Also, before the recession the share of total beginning balances that were paid off in a given billing cycle was about 20 percent overall. As of the beginning of 2015, that number was up to 27 percent.”
“There’s now a wider array of rewards programs and many of them are “more compelling value propositions” than were previously available, according to the report. The potential fly in the ointment here is that consumers may not be clear on how some of the partnerships that are often part of rewards programs work. That makes it harder to evaluate whether a rewards program is a good deal.”
Ongoing areas of concern include, unsuprisingly, interest free retail credit card offers and subprime credit cards.
“Who hasn’t seen television ads for zero percent financing on furniture or other larger-ticket items? While credit card pricing has generally become easier to understand, the CFPB singles out this area as “the most glaring exception to the general post-CARD Act trend towards upfront credit card pricing.” The report notes that those who don’t pay off the loan before the promotional period is over generally pay an interest rate of about 25 percent, which can lead to very painful interest charges.”
“Subprime credit cards are often offered pre-approved through direct mail and geared to those with problematic credit. Subprime specialist credit card issuers charged consumers fees and interest that was more than 40 percent of those borrowers’ year-end balances in 2013 and 2014. The CFPB notes that “despite offering longer and more complex credit card terms than mass market issuers, they [subprime speciality card issuers] send those mailings disproportionately to consumers with lower levels of formal education.”
Overview Alex Johnson, Senior Analyst, Credit Advisory Service at Mercator Advisory Group
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