One year ago on February 22, 2010, the epic Credit CARD Act took effect, which aimed to reform the entire credit card industry and help young people under age 21 steer clear of credit card dangers.
Now one year later, was the CARD Act a success?
The simple answer: yes and no.
Studies published last week show how the CARD Act has benefited consumers, despite opponents who claimed the laws would only prompt banks to think of new ways to make money.
Among the specifics of the CARD Act included clear and easy to understand disclosures on credit card statements.
According to the Center for Responsible Lending, "an estimated $12.1 billion in previously obscure yearly charges are now stated more clearly in credit card offers."
Another component of the CARD Act dealt with minimum payments. Credit card companies must now disclose exactly how much money in interest it will cost and how long it will take consumers to get out of debt if they only pay the minimum payment. According to a survey conducted by Consumer Reports in July 2010, 23% of those of participated in the survey are now making payments greater than the minimum as a result of the warnings on the credit card bill.
Interest rates on credit cards have increased. According to the Federal Reserve, interest rates on credit cards towards the end of 2010 on average were 13.44%, compared to about 12.08% in 2008. The credit card industry would argue that the increase in interest rates was due to the CARD Act and more rules and regulation. However, according to a study released last week from CardHub.com, the rise in interest rates was due to the unstable economy and not the CARD Act.
CARD Act Fails to Help Students
The CARD Act aimed to protect students from credit card dangers by requiring those under age 21 to have a cosigner on the account and prohibiting credit card companies from sending pre-approved credit card offers to those under age 21 via mail.
According to a study released last month from the University of Houston, 76% of undergraduate students received credit card offers in the mail over the past year. While it's still legal for companies to send credit card offers in the mail (pre-approved offers, however, are illegal and against the CARD Act), this study shows how willing credit card companies are to find any and all loopholes. Here's a tip: if you're a student and receive any type of credit card offer in the mail, rip it up and throw it away! Credit cards offers sent via mail are usually littered with high fees and high interest rates. Instead, apply for a secured credit card or visit CreditCardConnection.org to search for credit unions in your area.
While the CARD Act was a win in terms of more transparency and disclosures, it's up to the consumer to ensure that they are not getting ripped off by credit card companies. Best option: use cash - you won't have to worry about what credit card companies do and you'll never accrue credit card debt.
Scott Gamm is the founder of the personal finance website HelpSaveMyDollars.com. He has appeared on NBC's TODAY, MSNBC, Fox Business Network, Fox News, ABC News and CBS.