If credit cardholders feel worse off since the passage of the law designed to protect them from banks, that's because they are. An avalanche of new fees, interest rate hikes and other costly changes since the law was signed in May suggest the Credit Card Accountability, Responsibility and Disclosure Act, or the CARD Act, has backfired.
The consumer advocacy group Consumer Action on Monday released a list of such changes since passage of the CARD Act.
Call them CARD tricks, but most consumers aren't amused.
Consumer Action says since spring, banks have engaged in arbitrary interest rate hikes, increased fees on balance transfers, added annual membership fees and dramatically raised minimum payment requirements.
"The ink was barely dry on President Obama's signature of the CARD Act when banks started hitting consumers with higher fees and charges," said Travis Plunkett, legislative director of the Consumer Federation of America. "Congress can't write laws fast enough to keep up with these tricks and traps."
Consumer Action published on its Web site a gallery of what it said were the worst offenders. Here's some that made the list:
- Bank of America's Platinum Plus Visa, which increased interest rates by up to 46 percent.
- Capital One, which increased its penalty interest rate by 6.25 percent.
- Citigroup, which began collecting annual fees ranging from $30 to $90.
- JP Morgan Chase, which increased its balance transfer fee to 5 percent.
- JP Morgan Chase, which increased minimum payments from 2 percent to 5 percent. When consumers call asking for relief, they are told the only way to reduce their monthly payment is to accept a higher interest rate.
- HSBC, Chase, American Express and Bank of America, all of which have all closed accounts without warning.
Many issuers also have lowered consumers' credit limits without warning. This limits their purchasing power and hurts their credit score.
When it passed the law, Congress gave the banking industry nearly a year to implement the changes mandated by the CARD Act. Some in Congress now feel that was a mistake. Rep. Barney Frank, D.-Mass., has introduced legislation that would move up the effective date of the remaining provisions to Dec. 1.
Linda Sherry, a spokeswoman for Consumer Action, said the bank changes have turned the CARD Act on its head.
"Unfortunately, people are in a worse place than they were before because of the time period, the window of opportunity the banks had before the law takes effect," she said.
The consumer group released the research this week to lobby for creation of the Consumer Financial Safety Commission, a new federal regulatory agency that has been proposed by Democrats in Congress. The proposal gets a hearing in the House Financial Services Committee on Wednesday.
"This is an example of why we need the (new agency)," she said. "Congress felt it was doing a good thing in giving banks time to get their ducks in a row before the changes, and look what happened." A new agency could step in more quickly than Congress and address allegations of unfair changes in credit card terms, she said.
But Nessa Feddis, spokeswoman for the American Bankers Association, said that higher interest rates and new fees were to be expected after passage of the sweeping new credit card law.
"Congress understood that the new law would mean rates would go up across the board for everyone and it would be harder for small businesses to get credit cards, and they made the decision that this was an acceptable trade-off for consumer protection," she said.
But she added that some criticism of the credit card industry is unfair. For example, consumer groups are being "hypocritical" when criticizing increased minimum payment rates, she said.
"For years they have complained that minimum payments weren't high enough," she said. "Banks have been encouraged to do this by consumer groups and regulators, and now they are being criticized for it."
She also said she didn't understand why banks continue to be criticized for raising interest rates in advance of the Feb. 1 CARD Act final implementation date, because Congress required most CARD Act provisions dealing with rate hikes to kick in Aug. 20.
"Banks have been losing money since late 2008 and are projected to lose money into 2010," she said. There's no way Congress could have taken away revenue sources -- such as certain kinds of fees and rate hikes -- without anticipating others would appear. "To stay in business, revenue has to exceed expenses. That's basic economics," she said.
Bill Hardekopf, who runs credit card comparison site LowCards.com, also said that banks had warned Congress about higher fees and rates when the CARD Act was under discussion.
"It sounds funny to say, but credit card issuers lived up their word," he said.
He disputed the idea that a consumer protection agency would have made a difference during the past few months.
"If card issuers want to cut back on rewards programs, what could a government agency do? If they want to add membership fees, what could an agency do? All these things the card companies are doing are within the law," he said.
But Sherry said such an agency would be able to act quickly when there are changes in terms and conditions, and stem unfair, unclear or deceptive practices by banks.
"Right now there is nowhere for individual consumers to go and get their complaints addressed," she said. "That's what this agency would be."