CARD Act Holds Down Rates and Fees

Credit cards are more consumer-friendly and transparent.

July 21, 2011

Credit card holders are seeing steady interest rates, fewer late fees, eradication of over-limit penalties, and minimal changes to annual fees assessed for both credit unions and banks following the implementation of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009.

These findings are contained in a Pew research report, “A New Equilibrium: After Passage of Landmark Credit Card Reform, Interest Rates and Fees Have Stabilized,” reported in CUNA’s E-Scan Newsletter.

The survey analyzed online consumer card offerings of the 12 biggest banks and 12 largest credit unions from March 2010 to January 2011. These combined financial institutions control more than 90% of America's card debt, Pew reports.

The CARD Act restricted card issuers' abilities to increase interest rates and charge penalties. Further, the act required card issuers to adopt additional consumer-friendly measures, including advance notice of a change in terms.

A comparison of the data reveals that, as a result of the law, cards are indeed safer and more transparent for consumers, and rates and fees are more controlled.

Key findings of the Pew research:

Interest rates remain firm. Median advertised rates for bank cards vary from 12.99% to 20.99% given the consumer's history, reflecting no difference from 2010 to 2011. Cash advances and penalties for bank cards also remain steady.

For credit unions, rates range between 9.99% and 17%, reflecting a small increase over 2010. Cash advance charges for credit unions fell from 11.4% in 2010 to 10.9%.

Penalties are less expensive. Card fees for late payments can no longer exceed $25 as an initial penalty, or $35 for subsequent violation. Thus, the previous median late fee of $39 has declined to a fee now within the Fed’s acceptable range of $25 to $35.

Credit unions have experienced no changes in such fees since the enactment of the CARD Act, with fees remaining at a median amount of $25.

Over-limit fees are nearing extinction. Only 11% of bank cards have such fees—a drop from 23% in 2010 and down from in excess of 80% in 2009. The biggest credit unions offering cards have no over-limit fees attached to their cards.

Annual fees and other service charges make few moves. For 2011, the median amount of annual fees for banks remained at $59 and credit union card fees stayed at a median $25.

Although there was no change in the fee amount, 21% of bank-issued cards charged such fees, up from 14% the previous year.

For credit unions, those charging fees remained unchanged at 14%. Other service charges, such as cash advances, international purchases, and balance transfers reflect only small changes over the previous year.