Credit card issuers have eliminated many practices lawmakers deemed unfair as a result of the Credit CARD Act, most of which went into effect in February. But certain other practices that could put consumers at risk are on the rise, according to a study the Pew Health Group’s Safe Credit Cards Project released July 22.
“Most of the news is good, but we are seeing the rise of new harmful behavior,” Shelley A. Hearne, Pew Health Group managing director, said in a statement. Pew in March gathered data for the study from the 12 largest U.S. banks and the 12 largest credit unions, encompassing a total of 450 different credit cards.
Issuers have ceased raising cardholders’ interest rates on existing balances for infractions such as being one day late with a payment, and they are increasing cardholders’ interest rates only when a payment is more than 60 days late.
If cardholders make six on-time payments after receiving a penalty interest rate increase caused by a late payment, their original interest rate may be restored, but Pew found that most banks are not disclosing that fact to consumers in cardholder agreements.
Also within the past year issuers increasingly have failed to disclose the actual penalty interest rate consumers will have if their payments are late, Pew found. Penalty rates continue to be two to three times higher than base advertised rates, “making it difficult or impossible for a struggling cardholder to resume on-time payment,” the study says.
Issuers also are giving cardholders 45 days’ notice of pending interest rate changes and are applying payments first to balances with the highest interest rates, in accordance with the new law.
Most issuers have abandoned overlimit fees over the past year; only 23% of all cards Pew examined had an overlimit fee, down from 80% did in July 2009. The proportion of credit unions with overlimit fees fell to 19% in March from 89% in July last year.
Mandatory arbitration clauses limiting cardholders’ rights to settle disputes in court also have all but disappeared. Such arbitration clauses exist in only 10% of cardholder agreements compared with 68% that did a year ago, Pew found.
New fees on cards, which some observers predicted as a result of the legislation, largely have failed to materialize. The prevalence of credit cards with annual fees fell to 14% in March compared with 15% in July 2009, although the median annual fee rose, to $59 in March from $50 in July 2010, the study found. Credit union-issued credit cards’ median annual fees rose to $25 from $15 during the same period, Pew says. Annual fees ranged from $29 to $450 for banks and from $15 to $50 for credit unions.
Pew found that advertised interest rates on credit cards have continued to rise. (The Credit CARD Act does not place restrictions on new credit card account interest rates.) While interest rates vary widely, the median highest advertised interest rate on credit cards in March was 20.99%, up 300 basis points from 17.99% in July 2009.
Also, banks’ surcharge fees for cash advances on credit cards rose to 4% of each transaction in March from 3% in July 2009. Credit union cash-advance fees rose to 3% from 2.5%.
The Credit CARD Act included several protections for young adults, including the requirement of a co-signer for applicants under age 21, but Pew found only one card the mentions the new rule. “These new protections have not been widely reflected in card issuers’ terms and conditions,” Pew says.
While issuers have addressed many negative practices, more work is needed to eliminate further consumer risks, Pew contends. “With relatively minor policy changes to address these concerns, credit card issuers and regulators can add to the significant improvement seen in the industry over the past year,” Pew states.
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