The much-lauded Credit Card Accountability Responsibility and Disclosure Act (“CARD Act”) took effect on July 1, 2010. The new disclosure rules were meant to provide some much-needed protection for consumers. But nearly a year and a half later, researchers are calling into question whether or not the CARD Act is worth it.
Granted, in the midst of the financial crisis, it seemed like a really good idea to whip the credit card companies into shape. And the CARD Act did include many rules that seemed like good ideas for cardholders. Credit card offers faced new formatting requirements making fees and APRs easy to spot. Newly-approved customers were required to receive a one-page agreement summary. And bills and monthly statements were simplified, including a minimum payment warning showing customers how much it would cost and how long it would take to pay off their balance by only paying the minimum payments.
It all sounded like a surefire strategy to help protect the millions of Americans struggling with credit card debt. But researchers at the Harvard Business School aren’t so sure.
According to an ABC News blog, the researchers studied 132,000 members of the Affinity Plus Federal Credit Union of Minnesota with a collective portfolio of some 30,000 credit cards. They gave them a disclosure written according to the CARD Act, explaining the difference in cost between just paying the minimum and paying enough to pay off the card in three years.
You’d think that would scare more consumers into paying more than the minimum. And it did. But those consumers were also the ones with higher balances, lower credit scores and less than stellar payment records. Even if they chose to pay the three-year-payoff amount, they were going more deeply into debt to do it, and didn’t really understand that the three-year-target amount would change every month based on payments and charges.
So the disclosure rules are working. And they’re not working at the same time. We guess it’s not so surprising that one in four Americans has more credit card debt than emergency savings.
SOURCES:
http://abcnews.go.com/blogs/business/2012/02/credit-card-disclosures-effective-or-not/
http://www.bankrate.com/financing/credit-cards/new-credit-card-disclosure-rules/
http://www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders
http://caffertyfile.blogs.cnn.com/2012/02/27/what-does-it-mean-when-only-54-of-americans-have-more-emergency-savings-than-credit-card-debt/
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