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The effects (and after-effects) of the Credit CARD Act

Jun 06, 2014 Quinn Thomas

Although alternative credit can be of assistance to those with a poor or nonexistent fiscal history, others sometimes turn to conventional credit card companies. In light of the Great Recession, concerns regarding excessive spending habits, a lack of connectivity between card carriers and providers and other worries motivated United States lawmakers to implement the Credit Card Accountability, Responsibility and Disclosure (CARD) Act.

The Washington Post noted that the new law has brought clarity to an industry that was once muddled with misunderstanding. Consumers now have a better grasp on how interests rates are enforced and what paying late or exceeding credit limits will do to a person's score. The news source acknowledged that this level of awareness has saved U.S. constituents $12.6 billion annually since the Credit CARD Act was put into effect.

A look at interests rates


Several years ago, many people complained that consumer credit card companies could impose arbitrary interest rates. In response to these allegations, the Credit CARD Act mandated that such impositions can only go up if they're connected to another rate, if an introductory period concludes or if the borrower hasn't paid his or her bill for more than 60 days, according to American Progress contributor Joe V​alenti.

Before the law was put into action, interests rates could rise even if a card holder was late on a separate, unrelated bill - a practice more commonly known as universal default. Valenti referenced a statistic from 2005, when it was estimated that 45 percent of credit card providers employed such policies. Approximately 86 percent of companies that enforced universal default would increase rates if a car loan, mortgage or other payment was tardy.

Delivered in a timely manner
One of the mandates included in the Credit CARD Act requires credit card providers to mail monthly statements at least 21 days before payment is due. Valenti maintained that this practice has helped people maintain a better hold over their finances. Being aware of an impending fee well before it's supposed to be paid enables individuals to prepare well in advance and prohibit themselves from sustaining heavy interest rates.

Where does it go from here?
Still, greater transparency between consumers and credit card companies needs to be established. Valenti and others may agree that mandating that detailed information packets be sent to card holders is a good practice, but something could also be said of the U.S. education system. Providing guidance to up-and-coming market players and high school students of the repercussions associated with not paying a credit card bill as well as alternative finance and short term lending options could be implemented. It's difficult for individuals caught up in a routine to educate themselves in the matter, so reaching out to people while they're still in school seems practical.

Although a fair amount of credit card providers already offer the convenience, Valenti asserted that further laws should be implemented to allow borrowers to receive bill statements online. Individuals are becoming much more comfortable handling financial transactions online, so adapting to this new trend is advisable.