In the course of marking the one-year anniversary of the implementation of the CARD Act (and you’ll forgive me if I don’t send flowers) the new nannies at the Consumer Financial Protection Bureau want everyone to know what a boon to consumers the act has been. They’ve even done a survey. A “fact sheet” on the CFPB’s web site, put out as part of a one-day conference on the law the bureau is holding today, contains a summary of the survey’s results. Since the CARD Act’s implementation, the CFPB reports that:
– Rate hikes have been “dramatically curtailed.”
– Over-limit fees have “virtually disappeared.”
– The amount of late fees has been “substantially reduced.”
Thank goodness for our protectors in Washington! The conventional wisdom says that added regulation tends to increase provider costs which are then passed on to the consumer in the form of higher prices. But the folks at the CFPB seem to be implying that the CARD Act has saved consumers money. I don’t believe that. Do you believe that?
Of course not. And, sure enough, the CFPB’s fact sheet makes no mention of the one fact about holding a credit card that’s more important to most cardholders than any other: the interest rate. Since the CARD Act has gone into effect what’s happened to rates?
Please dispense with the drumroll; you know the answer as well as I do. Back in late 2009 as the CARD Act was being debated, issuers made no bones about the fact that they were going to have to raise rates to offset the restrictions (such as the banning of over-limit fees) the law would impose. And sure enough-even though the CFPB somehow failed to mention this-average card rates have surged since the law went into effect. According to IndexCreditCards.com, a web site that tracks these sorts of things, the rate charged on the average credit card is 16.89%, up from 15.39% back in September of 2009. That increase occurred, by the way, at a time when other consumer lending rates fell. By a lot. For example, while the average card rate was rising by 150 basis points, the rate on the average 60-month auto loan dropped by 218 basis points, to 5.21%, according to Bankrate.com. Similarly, the rate on the average personal loan fell by 260 basis points, to 9.89%. You can argue if you’d like that those rate declines had a lot to do with tighter underwriting and higher borrower FICOs. Fine. But surely card lenders tightened their underwriting over the same period.
This self-congratulation from the CFPB is a bunch of hogwash. The bureau can cherry-pick survey results and host celebratory conferences as much as it likes, but the fact is that the CARD Act, as everyone predicted, has cost consumers billions of dollars in the form of higher interest costs. Why that’s a good thing for consumers eludes me entirely.
What do you think? Let me know!