Thanks to reforms from the 2009 CARD Act reforms, American consumers last year saved $1.5 billion on lower late fees and $2.5 billion from new restrictions on fees charged for going over your credit limit.
Perhaps best of all, stringent requirements on credit cards for those under age 21 has resulted in the percentage of 18 to 20-year-olds with a credit card account dropping by half.
These are some of the highlights from a report released last week by the Consumer Financial Protection Bureau, a new regulatory agency created in the wake of the 2008 crisis.
Other reforms from the legislation — formally known as the Credit Card Accountability, Responsibility and Disclosure Act — included restrictions on raising interest rates, requiring payments due on the same day every month, applying payments to high-interest balances first and so on.
"The Credit CARD Act, and the work of the CFPB, shows the huge impact smart public policy can have on the kitchen table concerns of most Americans," Tamara Draut, research director at the advocacy group Demos, said in commenting on the report. "By mandating credit card companies earn their profits without tricks and traps, we've put hard-earned money back in the pocketbooks of working and middle class households."
For all the bellyaching by the industry over the reforms, they not only provided new protections to consumers but also helped make credit cards a more attractive product.
"When JD Power released its 2013 U.S. Credit Card Satisfaction Study, it showed credit card satisfaction at an all-time high since the study was first conducted," CFPB Director Richard Cordray said last week. "JD Power attributed some of that satisfaction to the CARD Act."
That doesn't mean the industry isn't still trying to hoodwink unsuspecting consumers. For instance, the CAR! D Act limits non-penalty fees in the first year of a credit card account to 25% of the credit limit to avoid the abuse of "fee-harvester" cards — giving a subprime borrower a card with a credit limit of $300, for instance, and immediately imposing an upfront fee of $185.
When the industry instead started charging high "application fees," regulators moved to include these fees in the 25% limit. A court challenge by credit card issuers, charging that the regulators were exceeding their authority because these fees preceded establishment of an account, forced them to back off.
The CFPB is also concerned about add-on products (identity theft protection, credit monitoring and such), deferred interest payments (which charge interest retroactively after a teaser period of no interest payments), lack of transparency in reward programs, and other practices that may not be in keeping with the spirit or the letter of the CARD Act.
CFPB took over responsibility for credit card regulation in July 2011, when it started operation, despite efforts in Congress to "defund" the new agency and hobble it by blocking confirmation of a director.
President Obama finally installed Cordray, a former attorney general in Ohio, in a controversial recess appointment in 2012. In July, Cordray was officially confirmed by the Senate as part of a compromise that allowed several blocked nominees to get approved.
The concept of a specialized agency to regulate consumer financial products was the brainchild of Elizabeth Warren, a former law professor and consumer advocate who is now a Democratic senator from Massachusetts.
It was clear in the wake of the financial crisis that the Federal Reserve, which used to regulate credit cards, had too many things on its plate to do any of them well.
The Fed was in charge of credit cards, but predatory practices were running wild. It regulated mortgages, but those, too, had spun out of control. It regulated large bank holding companies, all of which needed a! federal ! bailout when the crisis hit.
Even monetary policy, the Fed's main task, has been found wanting in retrospect, with the low-interest policies pushed by Chairman Alan Greenspan now being blamed for creating the real estate bubble that burst with such disastrous consequences.
So the CFPB has taken over regulation of credit cards and mortgages, and we have seen progress on both fronts, though mortgages still remain vexed as the government's future role in housing finance remains up in the air.
In the meantime, credit cards are one of the few good-news stories in our fitful progress toward regulatory reform.
Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron's, Institutional Investor and Bloomberg News service, among others. He is the author of four books, including the financial thriller Gold.
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