CFPB: CARD Act Followed by Increase in Credit Availability

Credit availability has increased by 10 percent and total cost of credit has decreased by 2 percent since the implementation of the CARD Act, the CFPB reported today. The report cited incremental growth in new account volume and an increase in approval rates as a sign that card credit is becoming more readily available to consumers — including subprime customers, noting that “average new general purpose credit lines are growing for consumers with lower credit scores and are steady for other consumers.”

The bureau attributed the reduction in the overall cost of credit to the restrictions the CARD Act imposed on various card fees, though much of that reduction was seen in the years immediately following the Act’s implementation in 2009. The total cost of credit has remained relatively unchanged since the CFPB’s last report in 2013.

However, while total costs have decreased with the slashing of fees, ABA SVP Nessa Feddis pointed out that interest rates have not followed this downward trend since the CARD Act took effect. “While many features of the CARD Act provide consumer benefits, other parts of the law have led to negative, unintended consequences,” Feddis said. “As the CFPB’s own study found, credit card interest rates have increased since the CARD Act, raising the cost for those who manage their credit well.”

In addition to its assessment of credit cost and availability, the report highlighted several areas of concern to the bureau, including the cost of deferred-interest products that offer zero-percent interest if the balance is paid in full during a specified promotional period, but can lead to high interest rates if balances are not paid off. Customers are also at risk of being confused by complex rewards programs offered by card issuers, the report found. The CFPB also noted concern about how prepared consumers with variable-rate cards will be for a rising interest rate environment.