A new federal law governing credit cards, set to take effect on Feb. 22, is intended to curtail abusive bank practices that cost consumers $20.5 billion per year in penalty fees and interest rates raised without cause. However, the amendments to the Truth in Lending Act, known as the Credit Card Accountability, Responsibility and Disclosure Act, have been widely criticized for doing too little for consumers.
Credit card issuer abuses leading up to the passage of the reform legislation were widely known.
The 2009 Pew Safe Credit Cards Project found that 93 percent of all credit card agreements allowed the issuer to unilaterally raise the interest rate at any time without cause. Seventy-two percent of credit card agreements dangled low promotional rates that were subject to revocation for a single late payment.
Some of the worst abuses in the credit card industry have historically occurred in the subprime markets. As issuers of subprime cards curtail some of their most oppressive practices to meet the mandate of the new law, they have resorted to new tactics such as astronomical interest rates - in one case as high as 79.9 percent APR. The new law does not limit the interest rates credit card insurers may charge.
Outside of the subprime market, many of the legal protections of the new credit card law are little more than codification of existing industry practice. For example, provisions ensuring consumers are given advance notice of rate changes and the opportunity to opt out are nothing new, nor is the right to close an account without becoming subject to accelerated default provisions that would cause the entire balance to immediately become due.
Congress could have, but chose not to, reestablish usury rates, ending the outrageous 30 percent and higher interest rates unilaterally imposed on late-paying consumers by credit card companies that invoked Congressional ire in the first place.
Limitations on universal default, the practice of treating a consumer's credit default on any credit obligation to any creditor as a basis for increasing the interest rate, are themselves limited. The law precludes credit card companies from using universal default against existing balances but allows them to impose universal default rate hikes with 45 days notice.
But the law does provide some limited protection for consumers, including a mandated 21-day period to make a payment before interest and late fees kick in. The law standardizes payment acceptance practices, prohibiting due date cut-off times before 5 p.m. for determining a payment's timeliness. The law also prohibits credit card issuers from counting weekends or holidays against a consumer in determining whether a payment is timely. These new provisions regarding payment timeliness should take a bite out of the typical $39 late fees prevalent in the industry.
