Who said the 111th Congress has never accomplished anything? Today, major parts of the Credit Card Act of 2009 take effect. Enacted last May with great fanfare, the legislation restricts rate increases on existing balances, requires promotional rates to last at least six months, limits over-limit fees, mandates 45 days notice before certain terms of service can be changed, and imposes a host of other requirements intended to help credit card users.
So should consumers be celebrating? Maybe not quite yet. As it turns out, the legislation ran smack dab into the Law of Unintended Consequences, likely leaving consumers worse — not better — off.
As a first matter, credit card issuers have been raising rates in anticipation of the new limits. In fact, according to one report, annual percentage rates (APR) for new cards averaged 13.46% last week, compared to 11.51% a year ago. At the same time, the once nearly extinct annual fee is making a comeback.
And there are new fees as well: Fifth Third Bancorp, for instance, has announced it will charge a $19 inactivity fee for cards not used for a year. JPMorgan Chase is raising balance transfer fees from 3% to 5%, and minimum payments from 3% of balances to 5%. Discover is adding a 2% fee for transactions made outside the United States.
So much for Congress’ claim that it would save consumers money. Even worse, the new, supposedly pro-consumer law is making credit harder to get in the first place. The amound of credit made available, in fact, nosedived 7% from March to September of last year. Some — especially low-income and younger consumers — may be left without credit entirely.
As unintended as these consequences may have been, they certainly were not unforeseeable. Congress — and the Administration — were warned of such un-consumer friendly results, but chose to ignore them, opting instead to pose as the consumer’s protector as they enacted the legislation, hoping that those consumers wouldn’t connect the dots once the downside hit.
And, rather than scramble to undo the damage, Congress may soon double down on its mistake. Under financial services reform legislation being considered in the Senate, a new consumer financial services agency would be created, with broad-ranging powers to regulate not just credit cards, but the whole spectrum of consumer financial services.
The legislation, however, neglects to repeal the law of unintended consequences. Despite all the efforts to protect them, consumers should not feel very safe.