Penalty fees down under credit card law
WASHINGTON (Reuters) - Credit card users are paying fewer penalty fees and rate hikes are more infrequent a year after sweeping rule changes imposed on card issuers by the U.S. Congress, according to surveys being released by U.S. regulators on Tuesday.
The crackdown on credit cards was pushed through Congress and signed into law by President Barack Obama in May 2009 in response to criticism that issuers were making their products so opaque that customers were facing late fees and rate hikes they did not realize were part of the card terms.
The law became effective on February 22, 2010 and the Obama administration is holding a conference on Tuesday with industry leaders and consumer groups to mark this one-year anniversary.
Elizabeth Warren, Obama's top adviser on consumer issues, credited banks and other card issuers with going beyond what was required by the law in some instances while warning that regulators would continue to seek ways to prevent any company from getting around the crackdowns.
"We can probably agree that this approach - write a rule, avoid a rule, write another rule - is costly for consumers and for the industry," Warren said in remarks prepared for delivery on Tuesday.
Warren's consumer team also said their research shows that while customers understand the terms of their credit cards better, "significant confusion remains."
Among the biggest card issuers are American Express, Bank of America, Capital One Financial Corp, JP Morgan Chase and Citigroup.
Warren is heading the effort to create the new Consumer Financial Protection Bureau, which will oversee the credit card law when it begins operating in July.
In advance of Tuesday's conference, Warren's consumer team and the Office of the Comptroller of the Currency conducted surveys to measure the impact of the new credit card law.
Among the findings is that the number of late fees paid by card holders dropped from $901 million in January 2010 to $427 million in November 2010. The administration credits this drop to new requirements that card issuers make it clear to customers under what circumstances they will be charged a late fee and to limits on these fees put in place by the Federal Reserve.
The surveys also showed that fees charged when a customer goes over the limit on their card have been mostly eliminated.
The law prevents a card company from charging an over limit fee unless a customer has given the card issuer permission to process a purchase that will cause the cardholder's limit to be exceeded.
The practice of increasing the rate on an existing account has also been curtailed due to new restrictions in the law, the surveys found. Prior to the law about 15 percent of existing accounts had their interest rate increased annually while that number now stands at 2 percent, the OCC found.
The card industry lobbied against the law and warned it could restrict the availability of credit.
On Monday one large industry group, the Financial Services Roundtable, held its fire.
Steve Bartlett, the group's president, said in a release that issuers were improving their products before the law but nonetheless added "one year later we are all in a better place."
(Reporting by Dave Clarke; Editing by Andrew Hay)