New credit card law goes into effect with doubt

New and existing credit legislation a beneficial quagmire

The new credit card law enacted through the Credit Card Responsibility and Disclosure Act of 2009 began taking effect on February 22, 2010, as set forth in the otherwise known Credit Card Act and CARD Act. The credit card reform sets out to create accountability in the credit card industry in addition to protecting consumers from predatory lending techniques. Simultaneously, however, the Credit Card Act only serves to inhibit the many predatory lenders of the credit card industry. This in effect leaves the American consumer with a partially improved range of financial protection.

In a report by the Center For Responsible Lending, the reality of the Credit Card Act's limitations becomes apparent. The CFRL study reveals several credit card cost techniques that are untouched by the credit card law, thereby rendering the Credit Card Act helpful, but not necessarily disabling to predatory lending. Of the fees to watch out for are cash advances, inactivity fees, changes to variable interest rate calculation formulas  and variable interest rates that can only go in one direction -- up. Annual fees are another method that credit card companies can use to recapture revenue streams impacted by the credit card act.

The Credit Card Act protects consumers in regard to transparency of information, notification of interest rate changes, responsible borrowing through age-related requirements of credit card applicants younger than 21 years of age, creditor reporting of free credit report acquisition, and clearer, timely and more informative credit card statements. These changes reduce credit risk for young adults, allow sufficient time to receive and make payment on credit card bills, help build consumer awareness, and protect debtors from paying excessive interest on debt.  Even so, as evident in a November 2009 letter from Chuck Schumer (D) to the chairman of the Federal Trade Commission, coercion is still possible in regard to building consumer awareness of the right to receive free credit reports without "strings attached."

The White House "fact sheet" released in May of 2009 clearly conveys what the law does, but omits what the law does not protect consumers from. Nevertheless, the White House statement does state the new credit card law must be periodically re-evaluated  for further needed regulation. This suggests that drafters of the law were aware the Credit Card Act does not prevent every possible form of unfair credit card practices by credit issuers.  In the meantime, credit card holders and applicants can rest assured the Credit Card Act does help prevent a number of debtor disadvantages, and may even reduce the bankruptcy application rate in years to come -- something that, in a twist of fate, also benefits credit card companies.

Consumers can also protect themselves from the unaddressed creditor practices by becoming aware of what the Credit Card Responsibility and Disclosure Act does and does not do. The aforementioned White House fact sheet summarizes the law into a short and clear document. However, credit card holders may also want to read their credit card agreements within the language of which many of the allowances to credit card companies are revealed. Among the terms may be variable rate interest changes that are allowable under the credit card act, and open-ended agreements that allow the credit card company to change the agreement with sufficient notice. 

 Additional consumer credit protections are also facilitated by the  Fair Credit Billing Act and Fair Credit Reporting Act. However, both these laws only require creditors and credit agencies to honor consumer rights, but place responsibility on the consumer for identifying and initiating correction and amelioration of any billing and credit record errors. This and other information that may be helpful in making you aware of your credit rights and awareness can be found at the U.S. Federal Trade Commission (FTC) Web site.