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How the CARD Act Helps Consumers

US News and World Report

The 2009 CARD Act has been celebrated for helping consumers: The law limits interest rate hikes, fees, and other frustrating aspects of the credit card industry. Now, on the three-year anniversary of the bill’s signing, a report from the research and advocacy organization Demos suggests that it has successfully helped middle- and low-income households pay down their balances and avoid fees.

The recently-released survey found that 9 in 10 cardholders carrying debt have noticed changes as a result of the law, including that fact that card companies are required to provide clearer information about their debt and give customers enough time between billing them and charging them with late fees.
One-third of the middle- and low-income households surveyed said they are paying their balances off faster as a result of the new information included on their statements. Cardholders with debt between $5,000 and $10,000 were even more likely to do so.
The survey also found that fewer households are paying late fees: 28 percent of households are now paying late fees, compared with 50 percent in 2009. The percentage of households paying over-limit fees, which consumers are charged for exceeding their credit limits, also fell.
In addition to the CARD Act, the economy also helped change people’s credit card habits. “Families who suddenly realized they were financially overextended changed their spending habits to adjust to the new realities of the sluggish economy and pay down debt,” Demos reports.
The survey also found that despite an overall reduction in credit card debt among American consumers, many middle- and low-income households still rely on plastic for everyday expenses. Four in 10 households surveyed said they used credit cards to pay for basic costs such as rent or mortgage, groceries, and insurance. At the same time, respondents reported that their average credit card debt fell to $7,145 from $9,887 in 2009.
Experiencing periods of unemployment or high medical bills were leading causes of debt. About half of households said they had debt from medical expenses, with an average amount on credit cards of $1,678. Older Americans were also most likely to carry hefty amounts of debt. Those age 65 and older carried an average of $9,283, while those ages 25 to 34 carried an average of $5,156 in debt.
At the same time, many consumers found it more difficult to access credit; 4 in 10 respondents said they had cards canceled, credit limits reduced, or applications for new credit denied. As a result, about half of them said they had cut their spending.
For all its apparent success, the CARD Act has also come under fire for some of its unintended consequences, including denying credit cards to stay-at-home moms and dads. Because the Federal Reserve interpreted one of the CARD Act’s clauses to mean that card companies must now consider individual income and not household income on credit card applications, stay-at-home parents have been denied credit cards, which has led to calls that the law should be changed.
How has the CARD Act affected you?