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Overview

One"year"ago"today,"on"February"22,"2010,"many"of"the"provisions"of"the"Credit"Card"Accountability,

Responsibility, and"Disclosure Act"(CARD"Act)"took"effect.""

When"the"CARD"Act"was"signed"into"law"in"May"2009,"it"was"clear"the"credit"card"market"was"in"need"

of"serious"reform.""Congress"concluded"that"certain"practices"in"the"credit"card"industry"were"not"fair"

and"transparent to"consumers,"and"the"CARD"Act"passed"with"very"strong"bipartisan"support"in"both"

the"House"and"the"Senate.""As"President"Obama"said"when"he"signed"the"CARD"Act"into"law,"the"Act"

was"intended"to"uphold"“basic"standards"of"fairness,"transparency,"and"accountability.”

Later"this"summer,"the"new"Consumer Financial"Protection"Bureau"(CFPB)"will"assume"responsibility"

for"administering"the"CARD"Act.""To"help"guide"it"in"performing"these"responsibilities,"the"CFPB"has"

convened"a conference,"The$CARD$Act:$One$Year$Later."" To"provide"a"factual"basis"for"the"discussion,"

the"CFPB"conducted"a"voluntary"survey of"the"nine"largest"card"issuers,"who"together"represent"

approximately"90"percent of"the"credit"card"marketplace,"about their"current"practices"and"future"

plans."Several"other"studies"were"also"developed"for"this"conference,"including"a"report"by"the"Office"

of"the"Comptroller"of"the"Currency"(OCC)"that looks"specifically"at"changes"in"the"pricing"practices"of"

card"issuers.""To"explore"the"impact"of"the"CARD"Act’s"new"disclosure"requirements on"the"consumer"

experience,"the"CFPB"also"commissioned"a"survey"of"cardholders.

These"studies"demonstrated that"one"year"after"the"effective"date"of"many"provisions"of"the"CARD"

Act,"industry"practices"have"changed"in"four"significant"ways."

• The"longSstanding"practice"of"hiking"interest"rates"on"existing"cardholder"accounts"has been"

dramatically"curtailed.

• The amount"of"late"fees"consumers"are"paying has"been"substantially"reduced.

• Overlimit"fees"have"virtually"disappeared"in"the"credit"card"industry.

• Consumers"report"that"their"credit"card"costs"are"clearer,"but"significant"confusion"remains.

Interest'Rate'Hikes Dramatically'Curtailed

Background: Prior to"the"enactment"of"the"CARD"Act,"it"was"quite"common"for"credit"card"companies"

to"raise"customers’"interest"rates, including"the"rates applied"to"existing"balances.""Often"the"hike"was"

put"into"effect"with"little"or"no"advance"notice.""The"CARD"Act"has"two"provisions"to address"increases"

in"interest"rates:
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• Card"issuers"generally"are"prohibited"from"increasing"the"interest"rate"on"an"existing"balance"

unless"the"cardholder"has"missed"two"consecutive"payments.

• Card"issuers"generally"are"permitted"to"increase"the"interest"rate"prospectively"on"new"

purchases,"but must"give"the"consumer"45"days"advance"notice – during"which"time"the"

consumer"may cancel"the"account.

One.Year.Later:

• The"OCC"study"shows"that"as"a"result"of"the"CARD"Act,"interest"rate"hikes"on"existing"

accounts"have"been"dramatically"curtailed.""Prior"to"the"CARD"Act, approximately"15 percent

of"accounts"were"repriced over"the"course"of"a"year;"today"that"number"is"under"2 percent.""

• The"CFPB"industry"survey"found"that"only"one"of"the"nine"issuers"currently"has"a"practice"of"

periodically"reviewing"the"APR"on"existing"accounts"and"raising"interest"rates"for"new"

purchases.""Five"of"the"top"nine"card"issuers"have increased,"or"plan"to"increase, the"interest"

rate"on"new"purchases"for"customers"who"are delinquent on"past"balances."A sixth"bank"

plans"to"test"such"“delinquent"pricing.”""The"CARD"Act"does"not"prohibit issuers"from"doing

so, and"a"number"of"card"issuers"have"reserved"the"right"to"change"rates"if"a"cardholder"is"

one"day"late.""This"is"among"the"evolving"market"practices"that"CFPB will"be"called"upon"to"

monitor.

Unfair'or'Excessive'Late'Fees'Reduced'Substantially

Background: Prior"to"the"enactment"of"the"CARD"Act,"there"were"a"variety"of"practices"that could"

cause"a"cardholder"to"be"assessed"a"late"fee.""Often,"those"fees"were"disproportionate"to"the"harm"or"

risk"resulting"from"the"cardholder’s"action.""The"CARD"Act"took"a"number"of"steps"to"curb"excessive"or"

unfair fees:

• Credit"card"bills"must"be"due"on"the"same"date"each"month and"payments"received"by"5:00"

p.m."on"the"due"date"must"be"treated"as"timely."Card"issuers"generally"cannot"charge"a"late"

fee"unless"consumers"are"given"at"least"21"days"to"pay"their"bill.""

• Under"the"Act,"late fees"and"other"penalty"fees"must"be"“reasonable"and"proportional” to"the"

violation"of"the"account"terms"in"question.""The Federal"Reserve"Board’s"implementing"rule"

establishes"a"“safe"harbor”"benchmark"for “reasonable"and"proportional” penalty"fees,"which"

the"Board"set"at $25"for"a"first"violation"and"$35"for a"second"violation"within"the"next"six"

months.""Late"fees"also"may"not"exceed"the"minimum"payment"due.

One.Year.Later:

• The"OCC"study"shows that"the"CARD"Act"has"substantially"curbed"late"fees."The"total"amount"

of late"fees"paid"by"consumers dropped"by"more"than"half,"from"$901"million"in"January 2010"

(before"the"effective"date"of"the"new"late"fee"rules) to"$427"million"in November 2010 (the"

latest"month"for"which"data"are"available).""The"number"of"accounts"assessed"at"least"one

late"fee"declined"by"almost"30 percent, and"the"average"size"of"the"late"fee"declined"from"$35"

to"$23.""
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• In"the"CFPB"industry"survey, six"of"the"largest nine"issuers"reported"that"they"have increased"

the"amount"of"the"minimum"payment"they"charge.""This"change"may"reduce"the"total"

interest"paid"by"certain"cardholders, but"also"may"result"in"increasing"late"fees.

Overlimit'Fees'Virtually'Eliminated

Background:""Prior"to"the"CARD"Act,"card"issuers"could"process"transactions"which"exceeded"a"

cardholder’s"credit"limit,"and"then"charge"an"overlimit"fee"in"connection"with"the"transaction –

typically"$39.""If"the"cardholder"was"unable"to"pay"enough"to"bring"the"balance"back"under"the"credit"

limit,"overlimit"fees"could"be"charged"month"after"month.""The"CARD"Act"has"a"number"of"provisions"

designed"to"address"these"practices, including"the"following:

• Card"issuers"are"prohibited"from"charging"an"overlimit"fee unless"the"cardholder"expressly"

opts"in"to"permit"the"issuer"to"process"overlimit"transactions.""Such"optSins"are"revocable"at"

any"time"by"the"consumer, and"the"consumer"must"be"notified"of"the"right"to"revoke"any"

time"an"overlimit"fee"is"assessed.

• Card"issuers"may"not"charge"more"than"one"overlimit"fee"on"any"one"billing"statement.""

• Overlimit"fees"also"are"generally"subject"to"the"same"limits"as"those"applicable to"late"fees.""

One.Year.Later:""

• The"OCC"study"finds"that"overlimit"fees"have"virtually"disappeared"in"the"credit"card"industry."

The"number of"accounts"charged"an"overlimit"fee"dropped"from"approximately"12 percent"

per"year"to"about"1 percent.""

• The"CFPB"industry"survey"found"that"all nine"of"the"top"issuers"have"continued to process"

some"overlimit"transactions SS but"now, in"many"cases,"without"charging"overlimit"fees.""Six"of"

the"nine"never"charge"overlimit"fees, while"three"sometimes"do"so"but"only"for"consumers

who"opt"in.

Credit'Card Costs'Clearer'

Background:..Prior"to"the"CARD"Act,"monthly"statements"provided"consumers"with"limited"

information"about"their"balances"and"obligations,"and"about"the"interest,"finance"charges,"and"other"

fees"they"were"incurring. This information"was"presented"with"confusing"terminology"and"in"a"

format"that"could"make"it"hard"to"find"key"information. This"made"it"difficult"for"consumers"to"

determine how"much"they"were"paying"for"their"credit"card. The"CARD"Act"and"related"Federal"

Reserve"Board"rules"made"a"number"of"changes,"including"the"following:

• Each"monthly"statement"must"include"how"long"it"will"take"to"pay"off"the"bill"and"the"total"

cost"to"the"consumer"as"a"result"of paying"only"the"minimum"amount"due.
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• Each"monthly"statement"must"include"how"much"the"consumer"should"pay"each"month"to"

pay"the"bill"off"in"three"years,"the"total"cost"to"the"consumer in"doing"so,"and"the"savings"

compared"to"paying"only"the"minimum"payment.

• Regulations"issued"by"the"Federal"Reserve"Board,"which"took"effect"along"with"the"CARD"Act"

implementing"rules,"require"each"monthly"statement"to"include"the"total"amount"of"interest"

charged"year"to"date,"and"a"similar"disclosure"relating"to"the"total"amount"of"fees.

One.Year.Later:..The"CFPB’s consumer survey,"taken"in"context"with"other"independent"research"

conducted"over"the"past"six"months,"indicates"that"consumers"have"a"better"understanding"of"the"

costs"of"their"credit"card, but"that"they"still"do"not feel"very"well"informed:

• 57 percent"of"cardholders"who"are"at"least"somewhat"familiar"with"the"CARD"Act"believe"that"

the"Act"has"been"personally"beneficial"to"them.""However,"awareness"of"the"Act"is"modest:"

only"46 percent"of"cardholders"report"being"very"or"somewhat"familiar"with"the"CARD"Act,

and"30 percent"say"they"are"not"at"all"familiar with"the"law.

• Awareness"of"most"of"the"changes"made"in"monthly"billing"statements"is"higher"than"

awareness"of"the"CARD"Act"itself:""

• 80"percent"of"cardholders"have noticed"that"their"payments"are"now"due"on"the"

same"day"of"each"month"

• 77"percent"have"noticed"that"the"monthly"statements"contain"a"warning"about"the"

cost"of"making"a"late"payment

• 70"percent"of"cardholders"have"noticed"that"monthly"statements"now"contain"

information"about"the"consequences"of"making"only"minimum"payments""

• 48 percent"of"consumers"recall"that"their"bill"now"tells"them"how"much"to"pay"each"

month"in"order"to"pay"off"the"balance"within"three"years

• 31"percent"of"cardholders"who"recall"seeing"the"new"information"on"their"statement"report"

that"this"information"has"caused"them"either"to"increase"the"payments"they"make"or"to"

reduce"their"use"of"credit.""

• Of"the"cardholders"who"have"noticed"at"least"one"of"the"changes"in"their"monthly"billing"

statements,"60 percent"say"that"their"monthly"statements"are"easier"to"read"and"understand"

than"they"were"a"year"ago.""Additionally,"60 percent"say"that"the"terms"of"their"credit"card"

are"clearer"than"they"used"to"be.

• At"the"same"time,"32 percent"of"those"who"carry"a"balance"from"month"to"month"say"they"do"

not"know"how"much"interest"they"paid"on"their"primary"credit"card"last"year.""Other"research"

on"the"consumer"credit"experience"found that"only"32 percent"of"consumers"report that"they"

understand"their"credit"card"terms"completely.1

 1 J.D."Power"and"Associates,"2010"Credit"Card"Satisfaction"Study
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A'Note'About'the'CFPB'Surveys

The"CFPB"industry"survey with"respect"to"pricing"practices"was"sent"to"the"largest"nine"bankcard"

issuers.""Because"the"CFPB"is"not"yet"authorized"to"supervise"these"financial"institutions,"participation"

in"the"CFPB’s"data"collection"was"voluntary.""Each"issuer"agreed"to"respond,"but"to preserve"

anonymity,"the"issuers"elected"to"retain"an"outside"law"firm"to"receive"their"individual"responses"and"

to"submit"an"aggregated"report"to"the"CFPB.""

The"CFPB"Consumer"Survey"was"conducted"by"Synovate,"a"market"research"firm,"between"February 3

and"February"8,"2011.""An"explanation"with"respect"to"the"survey"methodology"and"its"limitations"can"

be"found"at"www.consumerfinance.gov/creditScards/creditScardSact/.