Limitations Of The 2009 CARD Act – Guest Post
On May 22, 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act), passed by the US Congress to be put into effect on February 22, 2010. This past February marked the two-year anniversary of the reform, which sought to end predatory bank policies by protecting cardholders from arbitrary fees and intentionally misleading policies.
With two years under its belt, the act has been in place long enough for fair scrutiny, and though the CARD Act has cut down on some questionable banking practices, it has raised some new ones to replace lost profits. So let’s take a moment to see how the CARD act has held up over the past two years in its stated purpose to “establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan.” We can do this through two questionable provisions within the bill: protection against interest rates and college bank curtailment.
Protection against interest rates
The first provision listed in the CARD Act’s Credit Cardholders’ Bill of Rights is a protection against interest rate increases, including a required 45-day notice from companies before imposing interest rate increases and the right for cardholders to cancel their cards at their current interest rates within that time frame. Though this limitation on interest rates has protected cardholders from arbitrary interest hikes, it has also prompted banks to increase their initial interest rates. On average, credit card rates rose 2.1% for cardholders from 2008 to 2011. The statistic, from Forbes magazine, also estimates that a 2.1% increase equals a total of $16.8 million dollars in interest, for a country more than $800 billion in debt. While the CARD Act was meant to help those with lower credit scores, interest on their cards have risen above the 2.1% average, to 3.4%.
College bank curtailment
Another provision that is falling short is the college bank curtailment provision, which requires banks to provide legitimate reasons for visiting college campuses and outlaws banks from giving out promotional gifts (such as pizza coupons and t-shirts) to college students in exchange for filling out credit card applications. The provision was intended to protect college students from the kind of aggressive marketing that would eventually lead them into debt.
Although the provision limited certain marketing, it didn’t limit the marketing channel that most directly targets college students: social media. While banks can no longer use credit reports (from bureaus like TransUnion, Equifax, and Experian) to send out pre-screened credit card offers to college students under the age of 21, banks have found ways to obtain this information from other (generally online) sources. Also, while banks cannot give out promotional gifts in exchange for credit card applications, they can still offer gifts (slathered in logos) that are technically stipulation free.
To open a credit card, the provision requires a co-signer for persons under the age of 21 who don’t have sufficient income. Despite this law, bank lenders are now allowing young people to present their incomes in the unreliable forms of savings accounts and student loans (as opposed to employment records) in order to open a credit card without a cosigner.
The unfortunate truth about the CARD Act is that banks are finding ways around the new laws to continue their predatory practices of old. Hopefully, after a few years in effect, the government can rethink the CARD Act in order to eliminate possible loopholes and reduce America’s growing debt problem.As for now, to protect yourself as best you can, it’s a good idea to research credit card companies and credit cards online before making any credit decisions.
By Lynn Jackson, writing on behalf of eCredit.