Consumers weigh in on CARD Act benefits

Most elements of the CARD Act, which is considered by many to be the largest piece of credit card legislation since the inception of the industry, went into effect February 22, 2010.  Due to the Act’s focus on consumer protection, the National Foundation for Credit Counseling (NFCC) utilized its February online poll to ask consumers which of five selected elements of the Act were most meaningful to them.

The findings revealed that 72 percent of more than 3,500 respondents listed the most important provision to be the one centering around issuers generally not being able to raise interest rates on pre-existing purchases. Consumers so overwhelmingly favored this one provision, that there was not a close second. The four other options combined only accounted for 28 percent of the total votes cast.

This protection really struck a nerve with consumers, as many have experienced first-hand how difficult, or sometimes impossible, it is to make even the minimum required monthly payment after an interest rate increase. Further, when paying high interest on a high balance, debt reduction is discouragingly slow, sometimes taking decades to become debt free. Due to the CARD Act, if the credit card company does raise the interest rate, the new rate will apply only to new charges you make. If you have a balance, your old interest rate will still apply to that balance.

Consumers must realize, however, that even with these protections in place, they must spend wisely and handle their credit obligations responsibly. Even though the Act disallows an interest rate increase for the first 12 months a card is open, there are circumstances under which the issuer can raise the Annual Percentage Rate (APR). For instance, if the card has a variable interest rate tied to an index, the consumer’s interest rate can go up whenever the index goes up. Further, if the card is associated with an introductory rate, that rate must stay in place for at least six months, but after that time period has elapsed, the rate can increase.

Perhaps the trigger that consumers need to pay the most attention to is that an interest rate increase is allowed if the payments are more than 60 days late. But, even if that happens, consumers are not doomed long-term, as after six months of on-time payments, the issuer is required to lower the rate back to where it originated.

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.