Report to the Congress on the Profitability of Credit
Card Operations of Depository Institutions
- Recent Trends in Credit Card Pricing
- Recent Regulatory and Legislative Actions
Recent Regulatory and Legislative Actions
Credit card related lending has been the focus of relatively recent regulatory and legislative activity. The new rules affect a variety of business practices and have affected the pricing, marketing and underwriting of credit cards and ultimately their availability to and use by consumers.
On May 22, 2009, the "Credit Card Accountability Responsibility and Disclosure Act of 2009" (referred to here as the Card Act) was enacted by the Congress to establish new protections for credit card users by prohibiting or limiting certain acts or practices and improving the disclosures consumers receive in connection with credit card accounts and other revolving credit plans. In many respects, the legislation mirrors the changes to credit card rules implemented by the Federal Reserve in December 2008 but goes further in a number of areas. Among its many provisions, the Card Act ensures advanced notification of changes in key credit terms and establishes rules regarding repricing of outstanding balances, requires allocation of payments above the minimum to balances that are assessed the highest interest rate first, limits the imposition of certain fees, establishes rules for cardholders to "opt-in" if they wish to have their issuer allow a transaction to be paid if the payment exceeds their credit limit, requires disclosure of the consequences of only making required payments; places limitations on extending credit cards to those under the age of 21, establishes a requirement that issuers must consider the consumer's ability to make the required payments under the terms of a credit card plan before issuing a card or increasing a credit limit, and restricts fees on so-called "subprime" credit cards.
Rules regarding advanced notice and the amount of time a cardholder has to make payments took effect in August 2009. Most of the other rules that implement the provisions of the Card Act took effect on February 22, 2010. Additional rules, including provisions that ensure that so-called "penalty" fees (fees for late payments and for exceeding credit limits) are reasonable and proportional, took effect on August 22, 2010. Under the new penalty pricing rules, a credit card issuer cannot charge more than $25 unless one of the cardholder's last six payments was late, in which case the fee can be as high as $35, or the card issuer can demonstrate that the costs they incurred as a result of the late payment justify a higher fee.
Assessing the extent to which changes over the past few years in credit card pricing or credit availability are due to changes in either the economic environment or regulatory framework is beyond the scope of this report, but is a focus of a forthcoming report to the Congress by the Consumer Financial Protection Bureau (CFPB). Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, responsibility for writing regulations for credit cards issued to consumers transferred from the Federal Reserve Board to the CFPB in July 2011.