Credit card holders are facing fewer interest rate hikes and forking over sharply less in late fees.
A year after new regulations curbed a spate of questionable billing practices, federal officials say over-the-limit penalty charges have also been dramatically curtailed. The findings come from the newly created Consumer Financial Protection Bureau, which will assume responsibility for administering the regulations once it’s officially up and running this summer.
Fees and rate hikes: Penalty charges overall are down. In January of last year — just before the regulations took effect — cardholders paid $901 million in late fees. That amount was more than halved to $427 million by November, according to the agency. Also, the number of accounts assessed late fees fell by nearly 30 percent.
One reason for the drop in late fees is a new $25 cap on penalty charges. The fee can rise to $35 only if there’s a second violation within a six-month period. That helped bring the average late fee down to $23, from $35.
Consumers also benefited from rules on interest rates. Issuers can no longer hike rates on existing balances or in the first year after an account is opened. Cardholders must also be given 45 days’ notice before the rate is hiked on new purchases.
Before the regulations, about 15 percent of accounts saw rate hikes over the course of a year. That figure fell to 2 percent in the year after the new rules took effect, according to data by the Office of the Comptroller of the Currency.
Card issuer policies: A separate survey of the nine largest card issuers found that two-thirds no longer charge over-the-limit fees.
Before the regulations, card issuers would often approve transactions that caused cardholders to exceed their credit limits. The customers would then be charged fees as high as $39. Now customers cannot be penalized for going over their limits unless they opt in for such transactions.
The dropping of over-the-limit fees shows “much of the industry has gone further than the law requires,” said Elizabeth Warren, the Harvard professor who is charged with setting up the Consumer Financial Protection Bureau. Still, she noted in prepared remarks that some issuers responded to the regulations by looking for ways around them.
That’s why the agency will focus on continuing to make information about card prices easier to understand, Warren said.
Consumer understanding: The need for greater clarity in pricing was evident in another survey the agency conducted among consumers. Although 30 percent of respondents said they were not at all familiar with the CARD Act, most reported noticing changes that it brought about. For example, most consumers noticed that payments are now due on the same day each month and that statements contain new information about the projected interest costs of making only minimum payments.