Posted on Thursday, February 17, 2011
New credit card rules in the Credit CARD Act of 2009 are making credit card pricing significantly clearer, a new CRL research report finds. This means lower costs for consumers, by spurring competition and making it harder for issuers to manipulate or arbitrarily raise prices.
The report, “Credit Card Clarity: CARD Act Reform Works,” also finds that—contrary to industry claims and often repeated in the press—the price consumers pay for credit cards has remained stable and access to credit has not tightened beyond what would be expected from the economic downturn.
Those who would derail financial reform argue that rules and oversight inevitably lead to significant and negative “unintended consequences” for consumers. They’re wrong. The housing market crisis is one example of the harm a lack of common-sense rules brings. CRL’s new report shows that, prior to the CARD Act, the credit card industry was another.
I. KEY FINDINGS
• New rules have reduced the difference between stated rates and actual rates paid on credit cards, resulting in more transparent pricing. An estimated $12.1 billion in previously obscure yearly charges are now stated more clearly in credit card offers.
• Once the economic downturn is taken into account, the actual rate consumers have paid on credit card debt has remained level.
• Direct-mail offers have been extended at a volume and pace consistent with economic conditions.
CREDIT CARD CLARITY: CARD ACT REFORM WORKS
New credit card rules help consumers by making credit card pricing significantly clearer, new CRL research finds. New rules lower costs by spurring competition, making it harder for issuers to manipulate or arbitrarily raise prices.
CRL's study shows that the Credit CARD Act of 2009 has reversed much of the unclear pricing on credit cards, without leading to higher rates or more difficulty in getting credit.
These findings refute claims made by opponents of the credit card reforms. “People mistake higher rates on mail solicitations and other offers in the last year as a price hike,” said CRL senior researcher Josh Frank, author of the report. “But the facts show that offers now just more closely match actual costs. Prices have been level, but borrowers have a much better picture of what those prices are.”
The increased transparency documented in the report reverses a trend of increasingly unclear pricing that for years misled consumers into believing they would pay less for credit card debt than was true.
The difference between the stated rate on credit card solicitations and the rate consumers actually paid widened to unprecedented levels by 2004 and stayed at those levels through 2008. This difference narrowed markedly in the wake of CARD Act reform: Stated prices on solicitations have moved much closer to actual prices, which have remained steady.
Figure 1: Stated Rates and Actual Rates Paid on Consumer Credit Cards
The study also finds that, in the year since the CARD Act’s implementation, actual prices have remained stable and available credit has not tightened beyond what would be expected from the economic downturn.
Earlier CRL research has shown that, in the absence of basic rules, credit card issuers relied on confusing, complex pricing to charge more than consumers expected or understood.