Tougher credit card rules pay off for consumers

WASHINGTON — Credit card rules that took effect last year curbed interest rate increases and late fees and almost stamped out charges for exceeding credit limits, according to the new Consumer Financial Protection Bureau.

Before the new rules, 15 percent of existing credit card accounts were repriced with a new interest rate each year; that has since fallen to 2 percent, according to an agency study released Tuesday. Overlimit fees — charged when customers exceed credit limits — have "virtually disappeared in the credit card industry," the study found.

Late fees fell to $427 million in November, less than half the $901 million total for January 2010, the last month before the rules took effect. The average late fee declined to $23 from $35 over the same period, according to the study.

Elizabeth Warren, the special adviser in charge of setting up the bureau, is getting the word out about the Credit Card Accountability, Responsibility and Disclosure Act. Its main provisions, such as bans on sudden, steep interest rate increases and better disclosure of the terms, took effect one year ago. Warren has made credit cards and mortgages top priorities for the bureau, scheduled to officially begin its work July 21.

Consumer and industry groups praised the law in separate statements. The law has ended "some of the bait-and-switch tactics that unfairly trap credit card consumers in high-interest debt," Pamela Banks, senior policy counsel for Consumers Union, the publisher of Consumer Reports, said in a statement.

Steve Bartlett, chief executive officer of the Financial Services Roundtable, said in a statement that new disclosures give card users "an effective tool for controlling the cost of the financial products they use every day."

The consumer bureau used data collected voluntarily from the nine largest bank card issuers and used an unpublished report from the Office of the Comptroller of the Currency.

Consumers are also aware of changes on their monthly card billing statements, though only 32 percent of them understand their credit card agreement, a separate survey of consumers conducted for the consumer agency found.

While Warren has lauded the credit card law, she has argued for a new approach that emphasizes simpler disclosure to help consumers to comparison shop.

"We can probably agree that this approach — write a rule, avoid a rule, write another rule — is costly for consumers and the industry," Warren said. "Because it multiplies the number and complexity of rules, this approach creates special challenges for those smaller banks and credit issuers that still offer credit cards to their customers."

Tougher credit card rules pay off for consumers 02/22/11 [Last modified: Tuesday, February 22, 2011 8:39pm]

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