Credit Consumers Facing Fewer Rate Hikes, Fees

A new government watchdog agency and a consumer advocacy group agree that banking regulations enacted a year ago have reduced the rate hikes and hidden “gotcha” user fees with which banks saddled credit card holders in the past.

A spokesman for the American Banking Association disagrees.

It's the economy. It's the fact that people with bad credit are not using cards, or they are using cards they pay a much higher rate to use, he says.

Either way, the numbers indicate that penalty charges are down, according to the newly formed Consumer Financial Protection Bureau.

January 2010 late fees cost cardholders $901 million. This year, the amount was less than half at $427 million.

The biggest reason: a $25 cap on penalty charges written into Credit Card (CARD) Act of 2009.

Before the new regulations took effect, about 15% of accounts saw rate hikes over the course of a year. That figure fell to a slim 2% during the past year.

Another big plus is that lenders can no longer boost rates within the first year of a cardholder opening an account or without giving 45 days notice before the rate is hiked on new purchases.

Over the limit fees have been eliminated. Before the new law took effect, banks would sometimes approve purchases that put consumers over the limit – for a fee of as much as $39.

According to ABA spokesman Peter Garuccio, “Overall it has been a net positive for consumers, but there have been tradeoffs.

“...The difficult part is teasing out jus thow much of these changes attribute the CARD Act and how much to attribute to the economic downturn. We think they are attributable to both.”

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.”