Report sees gains, losses in card rules

Credit card customers are facing fewer interest rate increases and forking over sharply less in late fees.

A year after new regulations curbed a spate of questionable billing practices, federal officials say over-the-limit penalty charges have also been dramatically curtailed. The findings were released by the newly created Consumer Financial Protection Bureau, which will administer the regulations once it's officially up and running this summer.

The agency focused only on the impact of specific regulations, however, and did not look at the full scope of costs customers pay for cards. For example, new credit card accounts are now more likely to come with annual fees and higher interest rates. That could offset the savings noted by the consumer watchdog. The regulations have also greatly reduced available credit for riskier customers, the American Bankers Association noted in a release.

The findings were part of three sets of data presented by the agency at a conference it hosted Tuesday on the one-year anniversary of the Credit Card Accountability, Responsibility and Disclosure Act, or the CARD Act. Here are the highlights:

Penalty charges overall are down. In January of last year — just before the regulations took effect — cardholders paid $901 million in late fees. That amount was more than halved to $427 million by November, according to the agency. Also, the number of accounts assessed late fees fell by nearly 30 percent.

One reason for the drop in late fees is a new $25 cap on penalty charges. The fee can rise to $35 only if there's a second violation within a six-month period. That helped bring the average late fee down to $23, from $35.

Consumers also benefited from new rules on interest rates. Issuers can no longer hike rates on increase balances or in the first year after an account is opened. Cardholders must also be given 45 days' notice before the rate is hiked on new purchases.

Before the regulations, about 15 percent of accounts saw rate hikes over the course of a year. That figure fell to just 2 percent in the year after the new rules took effect, according to data supplied to the CFPB by the Office of the Comptroller of the Currency.

A separate survey of the nine largest card issuers found that two-thirds no longer charge over-the-limit fees.

Before the regulations, card issuers would often approve transactions that caused cardholders to exceed their credit limits. The customers would then be charged fees as high as $39. Now customers cannot be penalized for going over their limits unless they opt for such transactions to go through.

The dropping of over-the-limit fees shows "much of the industry has gone further than the law requires," said Elizabeth Warren, the Harvard professor who is charged with setting up the CFPB. Still, she noted that some issuers responded to the regulations by looking for ways around them.

The need for greater clarity in pricing was evident in another survey the agency conducted among consumers. Although 30 percent of respondents said they were not at all familiar with the CARD Act, most reported noticing changes that it brought about. For example, most consumers noticed that payments are now due on the same day each month and that statements contain new information about the projected interest costs of making only minimum payments.

About a third of customers who noticed the new disclosures said it caused them to take action, either by making larger payments or by curbing spending. Still, a third of respondents who carried balances said they don't know how much they paid in interest last year on their primary credit card.

To sharpen consumer understanding of the cost of credit, Warren said the agency will look at improving transparency without an "overreliance on rules."

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