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February 28, 2010

US CARD Act comes into force

The US Credit Card Accountability, Responsibility and Disclosure (CARD) Act, one of the most restrictive pieces of card-related reform in recent years, came into effect on 22 February, with President Barack Obama hailing it as helping to shift the balance of power back to consumers. The CARD Act was signed into law by Obama in May 2009, and its main components include protecting credit cardholders from certain fee and rate increases The new rules restrict credit card issuers from raising rates on late payments from cardholders and prevent them from charging over-limit fees unless cardholders have previously given permission to authorise transactions that would take them over their credit limit.

By Verdict Staff

The US Credit Card Accountability, Responsibility and Disclosure (CARD) Act, one of the most restrictive pieces of card-related reform in recent years, came into effect on 22 February, with President Barack Obama hailing it as helping to shift the balance of power back to consumers.

The CARD Act was signed into law by Obama in May 2009, and its main components include protecting credit cardholders from certain fee and rate increases. The new rules restrict credit card issuers from raising rates on late payments from cardholders and prevent them from charging over-limit fees unless cardholders have previously given permission to authorise transactions that would take them over their credit limit.

According to the US government, US consumers pay around $15 billion in penalty fees every year, and the CARD Act has been carried into law on a wave of pro-consumer pressure amid anger over industry practices related to card fees and charges. But the industry, already reeling from credit-related losses amid the global economic upheaval of the past two years, says that the new rules will hurt profit margins even more, and make accessing credit more expensive for consumers.

In late 2009, US issuers JPMorgan Chase warned that the CARD Act could result in it losing as much as $750 million, while Citigroup said that revenue lost from its US business could amount to between $400 million and $600 million. And according to US payment consulting specialist RK Hammer, the CARD Act could cost the industry as much as $5.5 billion in lost revenue in 2010 and more than $50 billion by 2015.

Wave of pro-consumer pressure mounts

And pro-consumer pressure continues to mount. US Treasury Secretary Timothy Geithner is pushing ahead with plans to establish a single independent consumer financial protection agency which would considerably embolden consumers when making complaints about banking and card-related fees and services.

Democratic Representative Barney Frank, chair of the Financial Services Committee, is a proponent of the consumer financial protection agency, claiming that its existence would have eased the CARD Act’s passage into law.

Barack ObamaIn a statement, he said: “It was unfortunately the case that some banks tried to game the system after we passed the bill into law, but their actions provide further evidence of our need for a consumer financial protection agency. While the House of Representatives did pass a bill to speed up the implementation date of the CARD Act, there was an inevitable delay in the legislative process and Republican objections in the Senate blocked the bill. Had the consumer financial protection agency been in existence we could have moved right away to block the banks’ egregious actions.”

However, some card companies are using the introduction of the CARD Act in a proactive way to engage with their customers and position themselves as more consumer-friendly.

On the day the CARD Act came into effect, American Express and Discover published online guides to the reforms in order to educate customers about the implications. The online guides include articles and videos to help customers understand how the reforms will affect their cards.

“We’ve always strived to treat our cardmembers fairly and with respect. In fact, many of the new reforms don’t affect how we do business – we believe this highlights the straightforward way we’ve done business since launching the first charge card more than 50 years ago,” said American Express on its website.

Carlos Minetti, executive vice-president of cardmember services and consumer banking at Discover, said: “Over the years, we’ve listened to our card members and know that they want ‘straight talk’ from their credit card company and our goal is to provide that to them. These online resources will help them better understand credit, while empowering them to achieve brighter financial futures.”

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