Negative Consequences of the Credit CARD Act

June 28, 2011 by  Filed under: Credit 

A full two years have passed since the Credit CARD Act became law, and financial experts admit to both the good and the bad consequences of the legislation. Thanks to the CARD Act, clearer credit card terms and conditions have made the credit industry more transparent and easier for consumers to see the impact they have on their credit accounts. Here we share in more detail the negative consequences of the new rules.

A Rise in Interest Rates
In the two years since the CARD Act went into effect, interest rates for a large number credit cards have risen for all types of revolving credit cards to more than 16%, up from 14% in 2009. The question that cannot be fully answered about higher rates is whether the depressed economy is responsible or whether limits on penalties and fees included in the new legislation lowered profits for credit issuers resulting in rising rates to recoup the loss.

Higher and New Fees
Annual fees were once a thing of the past but are now on the rise. In addition, with limits on how and when fees can be imposed, card issuers have come up with new ways to recoup some of their lost revenue. Included in the new fees you may see foreign transactions fees, inactivity fees and minimum finance charges. Whether these new and higher fees will be a permanent fixture still remains to be seen.

Difficulty for Non-working Spouses
Traditionally, a non-working spouse was able to claim their working partner’s credit history as their own. But the rules will change beginning October 1. Non-working spouses will no longer be able to use household income to qualify for a credit card on their own. Without income in their own name, it will be nearly impossible for them to establish an individual credit history, even in cases of divorce, separation or widowhood.

Bankruptcies Increase
One of the goals of the CARD Act was to help consumers manage their credit better to avoid the ultimate debt problem – bankruptcy. To that end, each credit card statement now must include important information about the debt – how long it will take to pay off if the minimum payment is made, etc. to help keep debt manageable. But many people were too far in debt and found the figures discouraging rather than inspiring and pushed them into bankruptcy. The numbers tell the story with over 1.5 billion personal bankruptcies filed in the U.S last year, 9% higher than 2009 and nearly 300% increase from 2006.

The long term effects of the CARD Act will be better educated borrowers who will be able to see and understand the potential damage of the debt they carry. Great credit cards will still be and responsible, educated consumers will continue to use credit to their advantage while maintaining a healthy credit history and an excellent credit score.

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