On the anniversary of the law that ushered in the most sweeping changes in the history of the credit card industry, nearly three out of four Americans with credit cards say their accounts are better today than they were a year ago, according to a scientific poll conducted on behalf of CreditCards.com.
The poll found 74 percent of credit cardholders feel their accounts are in better shape today than a year ago, when President Obama signed the Credit Card Accountability, Responsibility and Disclosure Act (commonly known as the Credit CARD Act) of 2009. Only a quarter of adults (26 percent) said their accounts are worse off.
"These results show that credit card reform is delivering important benefits for consumers," says Gail Hillebrand, senior staff attorney for Consumers Union, the San Francisco-based consumer advocacy group that publishes Consumer Reports magazine.
The random telephone poll conducted May 7-9, 2010, by GfK Roper Public Affairs & Media, interviewed 1,004 adults. The poll has a margin of error of plus or minus 3 percentage points on the full sample. (See poll methodology.)
The CARD Act -- signed into law May 22, 2009 -- dramatically changed the credit card game for both banks and consumers in the United States. Surprise interest rate hikes were eliminated and consumers were given the right to opt out of major changes to their accounts. Portions of the CARD Act are being phased in over a 15-month period, essentially to give banks time to revamp their billing and marketing operations to comply with the new rules. The first phase started Aug. 20, 2009, when 45-day advance notice of account changes became mandatory. The bulk of the consumer safeguards -- including interest rate protections for existing credit card balances -- began Feb. 22, 2010. The remaining measures, covering limits on gift card expiration dates and unreasonable fees, start in August 2010.
The poll results The CreditCards.com poll asked: "Would you say that your credit card accounts are better or worse today compared to a year ago?"
Income and age seemed to influence how cardholders felt about how their credit card accounts have fared over the past year. The younger and less wealthy they were, the more likely they were to say their accounts were worse. Nearly a third (31 percent) of people 18 to 24 years old felt their accounts were worse off and about the same proportion (36 percent and 34 percent, respectively) of people earning less than $20,000 and between $20,000 and $29,000 a year felt their accounts had taken a hit.
Chi Chi Wu, staff attorney for the National Consumer Law Center in Boston, notes that many credit card accounts were hit with rate hikes in the months immediately before and after Obama signed the new credit card law: "They were sort of getting their last licks in." The national average credit card rate stood at an even 12 percent in March 2009, two months before the law's passage, according to the CreditCards.com weekly survey of new card offers from large card issuers. As of May 19, 2010, the average had jumped by more than 2 percentage points, to 14.17 percent, according to the weekly survey.
Wu says, "It's good to see that while there were widespread rate hikes, there were other folks that felt that they benefited."
She added that the new law's restrictions on interest rate hikes on existing credit card balances are an added measure of protection for consumers. "Now, of course, those rate hikes can't be imposed retroactively."
Another aspect of the CARD Act scheduled to take effect in August 2010 requires card issuers to review the millions of accounts that have undergone rate hikes since January 2009 and, possibly, reduce the interest rates if customers have been good and paid their bills on time. Accounts that have been hiked must be reviewed every six months. However, the rate reduction is not mandatory and the reviews will not start until February 2011, under rules proposed by the Federal Reserve. Consumer groups have asked the Fed to make the reviews start earlier -- in August 2010 -- and make interest rate reductions mandatory, rather than optional for card issuers.
Says Wu: "The issuers have known about this for a year now and to give them another nine months is ridiculous ... They always give these issuers these huge lead times."
Terms a-changing The poll also asked about changes that have occurred to people's accounts in the past year.
Two-thirds of credit cardholders reported some kind of change -- either negative or positive -- in the past year.
Among the positive changes:
- Credit limit was increased (29 percent).
- Account was closed by consumers themselves (21 percent).
- Interest rate was lowered (11 percent).
Negative changes included:
- Interest rate hiked (27 percent).
- An annual fee added to the account (14 percent).
- Credit limit reduced (12 percent).
- Fees for paper statements added (10 percent).
- Account switched to variable rate from fixed rate (9 percent).
- Account closed by the card issuer (7 percent).
About one in four cardholders (28 percent) said there were changes to their accounts, but they weren't among those listed above. Six percent said they didn't know what changes had occurred.
A quarter (25 percent) of the people polled said they did not have credit cards, down slightly from February 2010, when a similar poll question found 29 percent did not have cards. A June 2009 poll found 19 percent of Americans polled did not have credit cards.
The poll showed a definite correlation between the kinds of changes that occurred to credit card accounts and whether cardholders felt their credit cards had improved over the past year.
People who felt their accounts were worse off were more likely to have been zinged by negative changes, namely interest rate hikes (38 percent), new annual fees (23 percent), credit limit reductions (20 percent), new fees for paper statements (21 percent), issuers closing accounts (14 percent) and being switched to variable rate terms (13 percent). Among those who said their accounts were worse off, just 46 percent of people reported positive changes compared to 64 percent who said they had negative changes to their accounts.
Making minimum payments The CARD Act requires credit card issuers to revamp monthly credit card billing statements to prominently disclose key payment and account information. Among the new disclosures: how many months it would take to completely pay off the current balance if cardholders continued to make only minimum payments each month. Along with that information, card issuers must also show how much consumers would have to pay each month if they want to pay off their balances in three years. The information must be displayed in a table on the front of all monthly statements.
The poll found:
- Nearly one in five (18 percent) cardholders said the new minimum payment disclosures had inspired them to pay more each month.
- Nearly half (48 percent) of people with credit cards said the new disclosures had no effect on their payment habits because they always pay their balances in full each month. Those people were more likely than any other group to feel that their accounts were better off today compared to a year ago (85 percent compared to 74 percent overall).
- A third of the cardholders (33 percent) indicated the minimum payment information made no difference to them because they were already paying as much as they could each month toward their credit card bills. These cardholders were likely deep in credit card debt. According to the poll, they were more likely to feel their accounts were worse off today than a year ago (43 percent versus 26 percent overall).
- A small number of people (2 percent) said the new minimum payment warning box made them call the toll-free number for a credit counseling agency listed on the monthly statement.
Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling (NFCC), a national association of nonprofit credit counseling agencies, says she was surprised that more people hadn't sought help through the toll-free number.
"We really thought that seeing their situation staring back at them in black and white would prompt them to do something about their financial situation," Cunningham says.
"This is driving me crazy. Why aren't people reaching out for help?" she asks. She likened the credit card crisis to the mortgage meltdown when an estimated 50 percent of homeowners said they never spoke to their lenders prior to their home foreclosures.
"We know that there are people out there who need help" with credit cards, Cunningham says. "Where is the disconnect and how can we fix it?"
She acknowledges that many things could be at play: Some may be reluctant to seek financial counseling because they are embarrassed, have their heads in the sand or are eternal optimists about their predicaments.
"Do they not think any substantive help is available? Is it a pride issue? Or maybe they truly think, 'My ship is about to come in. I'm about to land that job of my dreams. I know they'll pick me.' Then, they keep charging on the credit cards and then they're in bankruptcy court."
The CreditCards.com scientific survey posed the same question asked in an informal manner of visitors to the NFCC website during April 2010. Results from the NFCC survey were higher, likely because visitors to that site are already motivated to improve their credit.
Wu, from the national law center, says drafters of the minimum payment disclosure provision of the law -- which states the number of years it will take to pay off a balance if only the minimum payment is made -- wanted the notice to grab cardholders' attention.
"That's the idea," she says. "That this would inspire and motivate cardholders to pay more."
For those who said they were paying as much as they could already, and the notice made no difference, Wu says that's understandable. "We're in a tough economy right now. There are a lot of folks who are struggling financially."
Even the people who said they pay off their balances each month are benefitting from having the notice, Wu contends, because they are being reminded of the wisdom of their payment habits.
"I feel like I benefit because I look at it and say, 'Oh, I definitely don't want to pay this much.' It's a reminder that that's a smart thing to do," Wu says.
Financial protection agency Consumer advocates point to the one-in-four cardholders who say their accounts are worse off as further evidence of the need for a new consumer financial protection agency to become a watchdog over consumers' welfare in a variety of financial deals, including credit cards and personal loans. A proposal for such an agency is bundled in with a massive Wall Street reform bill currently under debate on Capitol Hill.
Says Wu from the consumer law group: "What we've seen in the last year is that issuers have adopted all sorts of new funky tactics to avoid the CARD Act. We really do need a consumer financial protection agency to be able to quickly respond."
She noted that she and her colleagues at the law center had been working nearly 10 years to bring about the reforms included in the CARD Act. A financial protection agency would be able to respond more quickly than Congress in quashing practices that are costly to family budgets. "American consumers can't wait another 10 years. We need a regulator that can respond more quickly than every 10 years."
Adds Wu: "This has been a long process. It's not over. These issuers are really creative. We're just waiting for the next abusive practice to come up."
Poll methodology The 2010 survey was conducted May 7-9, 2010, by GfK Roper Public Affairs & Media on behalf of CreditCards.com. Random digit dialing phone interviews were completed with 1,004 adults 18 years old or older. The February 2010 survey was conducted Feb. 5-7, among 1,004 adults 18 years of age and over. The 2009 survey was conducted June 26-28, 2009 among 1,004 adults 18 years of age or over. In all of the surveys, the raw data were weighted by a custom designed computer program that automatically developed a weighting factor for each respondent, employing five variables: age, sex, education, race and geographic region.
The survey had a margin of error of plus or minus 3 percentage points on the full sample, and a plus or minus 3.5 points on the subsample of credit cardholders.