In 2009, the Credit Card Accountability, Responsibility, and Disclosure Act, better known as the CARD Act, was signed in to law. One year later, the act went into effect. February 22, 2012 marked the two-year anniversary of the legislation that was supposed to finally put a stop to the predatory policies that banks were using to put middle- and lower-class Americans deeper in to debt while lining the banks' pockets.
Looking at the CARD Act two years later, has it accomplished everything that Washington intended when it swept through Congress with very little public opposition? Washington will tell us that the legislation has made our lives better but is that really the case?

Interest Rates
The first place consumers are advised to go when evaluating a credit card is the interest rate, so let's do the same thing. According to Forbes, from 2008 to 2011 the prime rate and mortgage rates fell year-over-year, but credit card rates rose by an average of 2.1%. Existing customers who pay their bills on time may not see these higher rates, but Forbes estimates that the 2.1% increase could mean $16.8 million or more in added interest to a country of credit card users already in debt more than $800 billion combined.

If the CARD Act was supposed to help the lower and middle class that may have a lower credit score, interest rates may tell a different story. Credit cards designed for borrowers with excellent credit scores only saw an interest rate increase of 1.6% on average, but for subprime as well as cards for those with slightly less than excellent scores, the interest rates rose 3.4% from 2008 to 2011.

Balance Transfers
Maybe you've never used the balance transfer feature on a new credit card, but it remains highly popular for many. Before the CARD Act, 33% of credit card companies put a cap on their balance transfer fees, but today that figure sits at just 4%. In addition, the average interest rate on balance transfers is now 3.3%, up from 2008 levels of 2.1%.

Is It All Bad?
Experts say no. Fewer late fees, over the limit fees and their compounding effects have helped the consumer get out from under the ballooning fees that used to run up the balance, which sometimes triggered more fees. What we've learned from the CARD Act and other financial legislation is that one income stream closing means another will quickly take its place in order to remain profitable for shareholders, an action not unique to the financial industry.

Experts say that the best way to avoid becoming victim to higher interest rates is to use your credit card wisely. Charge only what you can afford to pay off at the end of the month. This makes the interest rate largely unimportant to you. Although banks want to charge for the use of your debit card, most still don't, and using that instead of a credit card is still the best way to keep fees and interest from taking a large bite out of your monthly budget.

The Bottom Line
The CARD Act may have put a stop to the credit card companies' practices that most people found to be unfair and unethical, but no business is going to allow its income stream to be impacted without finding a place to replace its profits. In the future, when we hear of similar legislation, we should always remember that closing one profitable door will only open another, but that isn't always bad.

Related Articles
  1. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  2. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  3. Credit & Loans

    Bad Credit? You Can Still Get a Home Equity Loan

    If your credit history is less than stellar and you need cash, you may be able to get financing – but it will come at a price.
  4. Professionals

    Small Business: Minimize Your Credit Card Fees

    Accepting credit cards is a must these days, but small business owners can take steps to minimize profit-eating credit card fees.
  5. Personal Finance

    How Sending Money on Gmail Works

    Learn how sending money via Gmail works, and understand how Google makes money from offering this service despite it being free to use.
  6. Credit & Loans

    Does a Lost or Stolen Credit Card Hurt Your Credit Score?

    Learn the ways in which a lost or stolen credit card can hurt your credit, and understand the steps you can take to protect yourself if this happens.
  7. Credit & Loans

    Refinancing vs. a Home-Equity Loan: How to Decide

    If you want to pay off debt, make home improvements or just get a better interest rate, you need to know exactly what these terms mean.
  8. Credit & Loans

    Millennials Guide: How to Pick the Right Mortgage

    Here’s help in finding the perfect, affordable loan for that home you have been dreaming about.
  9. Credit & Loans

    How Regulations Protect Reverse Mortgage Borrowers

    They're complex animals, which is why there are government guidelines in place to protect borrowers.
  10. Investing

    Debit or Credit Card: Which to Use for Car Rentals

    Before you rent your next car, think twice about purchasing the added insurance if you're using a credit card.
  1. Will my credit score suffer from debt consolidation or refinancing?

    You have several options for reducing your debt burden. You can enroll in a professional debt management plan, or consider ... Read Full Answer >>
  2. Can I file for bankruptcy more than once?

    Filing bankruptcy is never a simple decision, but sometimes it is the best thing you can do in your current financial situation. ... Read Full Answer >>
  3. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  4. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  5. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  6. What are the typical requirements to qualify for closed end credit?

    Typical requirements for a consumer to qualify for closed-end credit include satisfactory income level and credit history, ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!