Card Act Helps Consumers

While Massachusetts bankruptcy filings have gone down, and the answers as to why somewhat unclear, some credit may go to the Card Act, which is saving billions of dollars per year for consumers, and largely low and moderate-income consumers with poor credit.

We have long held that bankruptcy clients should not “feel guilty” because the banks and other lenders have already factored in a percentage of their debts as unable to be paid.  Furthermore, a large part of bank profits has been from the backs of those with poor credit, who have paid exorbitant interest rates.  Consumers are entitled to a “fresh start” under federal bankruptcy law.

What is the CARD Act?

Enacted to highlight the hidden fees creditors charged consumers, the CARD Act was passed by Congress in 2009, more formally called the Credit Card Accountability Responsibility and Disclosure Act (CARD).  The new regulations brought to light many formerly misleading ways of doing business, and forced numerous changes.

The CARD act was aimed at fixing the fine print that was attached to most loans and credit card agreements.  The print that nobody read.  The print, however that addressed the three things that consumers want to know:  annual fee, interest rate, and rewards.

Most importantly, the fine print addressed interest rates that, in effect, went from reasonable to extraordinary if any payment was missed or late.   This information, regarding a permanent penalty, was often effectively hidden from sight.   Furthermore, if someone went over their credit limit, even slightly, the interest rates could be jacked up permanently.

The CARD Act is enforced by the Consumer Financial Protection Bureau, the brainchild of Massachusetts Senator Elizabeth Warren.

Research Study Proves CARD Act is Effective

A study undertaken by economist and Chicago Business School professor Neale Mahoney (and others) showed that this new law is working:  notwithstanding the fact that is a new regulation, which is shunned by the banks and other lenders, the study showed that the costs for borrowing money, especially for folks with poor credit, including those with bankruptcies on their record, are lower!  Not just lower, but saving consumers over $20 billion per year.

According to the study, prior to the law going into effect, those with the worse credit were paying a 20.6% interest rate, on average, plus an additional 23.3% in fees!

While the study does not give a final answer as to why the law is so effective, the conclusions by the professors who researched and wrote up the results is that perhaps competition is good.  That is, without deceptive marketing and misleading fee information, consumers can actually choose which creditor to use with better understanding of the costs associated with the borrowing.   In addition, the banks competed against one another without raising interest rates.

Is There a Hidden Cost to Consumers?

Perhaps there are hidden costs that are not accounted for in the study.  For example, if credit was limited, many folks would not be able to get a credit card, or would only get limited access to credit.  The banks simply would not lend to folks with a higher risk without an associated higher fee, or interest rate.

Experienced Bankruptcy Attorney

If you have high credit card bills and cannot make the payments, seek the professional advice of an experienced bankruptcy attorney.  Neil Burns has been representing consumers since 1985 and offers a free initial consultation.

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