Credit CARD Act Turns 3: A Regulation Even Stephen Colbert Could Celebrate

“I can afford to get ripped off,” Stephen Colbert informed Demos’ Tammy Draut back in May 2009 “I think it’s the poor people who can’t afford to get ripped off who are ruining this for everybody.”

The joke hit the mark, but Comedy Central’s satirical pundit had it backward, Tammy quickly noted. It was low- and middle-income consumers paying high penalties and fees who were subsidizing his credit card perks. That’s why the nation needed regulation to rein in the abusive practices of “an entire industry is built on gotcha tactics – designed to keep people in debt at a very high cost.” Within weeks, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act into law, ending many of the tricks and traps used by credit card issuers.

The law was enacted three years ago today, and new Demos research finds that it’s working as intended to save households money.

We find that the Credit CARD Act is helping households pay down balances faster, with a third of low- and middle-income households that carry credit card debt reporting that new disclosures have caused them to pay down their balances faster. The Act is also helping households avoid excessive fees and interest rate hikes: the percentage of surveyed households paying late fees plummeted from 53 percent in our 2008 study to just 28 percent today. The proportion seeing an interest rate hike as a result of late payments also fell.

The conclusion? Credit cards are a better, fairer financial product for American consumers as a result of the CARD Act. And while Colbert’s income bracket wasn’t part of our sample of low- and middle-income households, the law’s ban on abusive practices likely keeps him from getting ripped off as well.

There, however, a drawback: Demos' new report, “The Plastic Safety Net” also finds that consumer protections alone can’t remedy the deeper problems of lagging wages, high unemployment, and a fraying public safety net that are causing low- and middle-income Americans to rely on their credit cards to make ends meet and cope with emergencies. But we’ll explore those findings in a future post: for today, it’s Happy Birthday Credit CARD Act! It’s good to have something to celebrate.