Today marks the first day that credit card companies must adhere to the CARD Act, and perhaps the beginning of the end of good credit card offers. For over a decade, consumers with good credit have enjoyed low interest rates, 0% introductory rates lasting 1 year or more, and fee-free credit cards. From the moment the CARD Act gained traction in Congress, these benefits have been dwindling.
Throughout 2009, credit card companies went on an interest rate raising binge. Consumers with all types of credit, even very good credit, were slapped with often substantial rate increases. These interest rate increases seemed to come out of nowhere, but were mostly due to the restrictions imposed by the CARD Act. Prior to today, credit card companies could raise rates on customers who were delinquent to offset the potential risk they posed. Knowing that this would no longer be allowed, credit card companies proactively raised rates on customers, causing substantial hardship for many.
Now that the days of interest rate increases have ended, consumers are looking at higher interest rates than they might have had were it not for the CARD Act. And, with stipulations limiting late and over the limit fees, the cost of using credit cards is likely to increase for the foreseeable future as credit card companies adjust to the new rules.
In order to recoup billions of dollars in lost fee revenue, credit card companies may turn to annual fees or, less conspicuously, to slightly higher interest rates than they would have otherwise charged. A 2% interest rate increase amounts to about $100 yearly in added interest expense to a person with a revolving balance of $5,000. So, even if banks don’t charge annual fees, they can offer consumers higher rates that cost them more than a straightforward fee.
Ultimately, the benefits of the CARD Act may outweigh the drawbacks in the long run. But the havoc this legislation wreaked on the balance sheets of American consumers will take years to justify the benefits new cardholders will reap.
-Jennifer Davide
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