Since the enactment of the Credit Card Accountability Responsibility and Disclosure Act of 2009, consumers have benefited from more transparent pricing and improved ability to manage credit card debt. Although 68 percent of consumers had a credit card in 2010, fewer than 40 percent carried a balance that year – the lowest proportion on record. Interest rates paid on credit card debt has fallen since the Act's implementation. Moreover, the number of late fees paid by consumers dropped by more than half – from $901 million in January 2010 to $427 million in November that same year.
Consumers benefited while issuers continued to profit. At the same time, the nation's top five credit card issuers – who accounted for more than half of the credit card market with combined portfolios of $475 billion, continued to enjoy net earnings that were significantly higher than those of other commercial banks.
The State of Lending in America and its Impact on U.S. Households, addresses how credit card practices and usage have changed since the enactment of credit card reform. It also speaks to emerging challenges.
While opponents of credit card reform predicted that the Credit CARD Act would lead to higher prices and shrinking credit availability, those claims were never realized. According to CRL, "Opponents of the Credit CARD Act raised fears that the reforms would result in the unintended consequence of restricting consumers' access to credit. This has been proven unfounded."
Additionally, a series of credit card enforcement actions in 2012 by the Consumer Financial Protection Bureau (CFPB) resulted in consumers receiving nearly half a billion dollars in refunds. Government penalties were added to these refunds at an additional cost of $66.5 million.
Despite these encouraging developments, debt remains a weighty financial burden for millions of Americans. After examining consumer activity from 2000 to 2012, CRL found that credit card debt rose over a full decade from $172 billion in 2000 to $855 billion in 2012. The only consumer debts that surpassed credit cards were housing, cars, and student loans.
Many low and moderate income households still turn to credit cards to pay for basic expenses at the rate of 40 percent. Credit card debt has also stemmed from out-of-pocket medical costs for 47 percent of low- and middle-income families. And among families struggling with the challenges of employment, 86 percent racked up credit card debt.
Further, new financial challenges are emerging with a seven-year surge in the use of prepaid cards. In 2009 alone, six billion prepaid card transactions totaled $140 billion in the U.S.
In addition to consumers, many governmental benefits are shifting towards payment via prepaid cards and some employers now offer prepaid cards instead of traditional payroll checks.
"Prepaid credit cards can provide convenience and safety, but these advantages can be quickly eroded by high fees. Many prepaid cards come with significant charges – fees to sign up, deposit money, check a balance, use an ATM, and cancel the account," the report said. "Because the disclosure of fees varies from card to card – many are hidden altogether – consumers have difficulty knowing what their costs will be, let alone comparison shopping", the report said.
CRL urges continued state and federal enforcements and strong defense of both the CFPB and the Credit CARD Act. For prepaid cards, CRL will analyze credit features, mandatory arbitration and the effect of overdraft fees.
Charlene Crowell is a communications manager with the Center for Responsible Lending.