Would Speeding Up the CARD Act Benefit Consumers?
Tomorrow, the House Financial Services Committee will be conducting hearings to move the effective date for the next provisions of the Credit CARD Act from February 22, 2010 to December 1, 2009.
Speeding up the implementation date for the next stage of these credit card reforms by 12 weeks won’t be easy for a bureaucratic government. However, the timing would benefit cardholders.
For example, starting these provisions on December 1 would benefit consumers during the holiday shopping season when credit card spending is highest. Experts say December and January are traditionally the biggest months for credit card applications, so December 1 would be a good time to start prohibiting rate increases during the card’s first year. This earlier date would also accelerate the restrictions on marketing cards to college students under 21 so they take place before the second semester begins in January or February.
When the CARD Act passed in May, issuers were given 9 months to implement the changes that restrict some interest rate hikes, over-the-limit fees and marketing cards to people under 21.
Experts say congress purposefully created a long implementation period so that all parties had time to make the changes. Instead, many issuers used this time to increase interest rates, change terms, and make changes to protect themselves; this has hurt and angered cardholders. Certain members of Congress are reacting to this by proposing an earlier effective date on some of the major provisions of the CARD Act.
While bumping up the date sounds like a good idea, it isn’t as simple as writing a new date in on the calendar. Banks, issuers, and federal agencies must make changes to comply with regulations. Most say they will not be able to do this by December 1.
Moving the date could also force the Federal Reserve to act faster. The Federal Reserve administers the regulations that are in the CARD Act as well as any major federal law that governs consumer credit protection. The Fed has its own process to follow.
Last week, the Federal Reserve Board released an 841-page proposal for rules that amend the Truth in Lending Act. This amends the regulations adopted by the Federal Reserve in December 2008 and incorporates the provisions of the CARD Act. Comments on the proposal must be submitted 30 days after it is released.
The CARD Act gives the Federal Reserve rulemaking authority and it is implementing the major provisions of the Act in three stages on the timeline set by Congress.
* The first stage went into effect on August 20, 2009, and addressed three elements: issuers must mail the monthly bill 21 days ahead of the due date instead of 14; issuers must give consumers at least 45 days notice before increasing rates rather than 15 days; and all issuers must give consumers the opportunity to “opt out” of a card should the rate increase.
* The second stage of the Act is scheduled to go into effect on February 22, 2010. This stage includes regulations for rate increases, over-the-limit fees, and restrictions on applicants under 21 years of age.
* The third major stage goes into effect Aug. 22, 2010. These provisions include dealing with penalty fees and changes in gift cards.