In recent weeks the debate over debit card fees has put federal regulation of retail banks back in the headlines. In light of this, MyBankTracker.com decided to take a look back at the Credit Card Accountability Responsibility and Disclosure Act of 2009, which overhauled federal regulations on credit card issuers in the wake of the 2008 financial crisis.
Regulators have been toying with different legislations to enforce within the banking industry, and consumers have not been paying attention until their individual accounts were affected. In order to avoid these surprises down the line MyBankTracker.com journalists, Carolyn Okomo and Willy Staley, take a look back at the CARD Act of 2009, examine its efficacy, and consider what lessons regulators should take away from the law’s success.
The Card Act Broken Down
The CARD Act made it more difficult for banks to generate revenue through levying fees on subprime users, and introduced new regulations on college credit cards. Like Dodd-Frank, it cut directly into banks’ fee based revenue stream. Unlike Dodd-Frank, the CARD Act did not lead to banks directly punishing their customers with new fees. Instead, the CARD Act pushed banks back towards the honest business of extending credit to worth customers, and away from more predatory behavior that guaranteed easy profits at the expense of subprime customers’ and students’ financial health.
The main findings of our report on the matter are:
- Student credit card debt has declined significantly since the CARD Act’s passage
- Predatory lenders have been pushed out of the college card market, lowering rates
- Credit card offers have increased as banks seek out new business to offset their losses
- Credit card issuers have also increased number of introductory offers to attract new business
Why the Act Was A Success
In short, the CARD Act worked well because it punished bad behavior, and banks’ could only raise interest rates on their customers, or charge annual fees. They did both, but they couldn’t gouge their customers without making their products uncompetitive. Banks operate in a free market, after all.
The CARD Act provides a good rubric for how to successfully regulate the way banks levy fees, and how to prevent predatory behavior. As recent events show, banks and their public allies will make a lot of noise over having their revenue streams dammed up by Washington regulators, but this rarely actually hurts the consumer. Regulation, done properly, yields good results for consumers.
Tune back in on Friday, when we will be taking a look at the CARD Act’s effect on student credit, and again on Sunday, when we will be looking at the CARD Act’s effects industry-wide.