Credit CARD Act

When, last year, legislators wanted a sharp acronym for the law that would create this week’s credit card regulations they came up with “Credit CARD”, which stands for “Credit Card Accountability, Responsibility, and Disclosure.” And consumers are about to find out just what the last of those, Disclosure, means.

Because, from now on, every monthly statement must contain two additional pieces of information. First, they must tell cardholders how long it will take them to pay their current balances down to zero, assuming they continuously make only minimum payments. And secondly, the statements must reveal how much they would have to pay each month if they wanted to pay off their balances over the following three years.

Credit Card Companies Unhappy

Few credit card companies are likely to welcome this innovation. The website of BB&T, one bank that has for years been candid with its customers about these matters, explains why:

Credit card companies usually calculate the monthly minimum payment due as a percentage of your outstanding balance. The percentage is usually more than the interest rate they are charging on your balance, but low enough to make the minimum payment amount seem attractive. After all, they make money by charging interest on what you owe.

Credit Card Debt That Keeps on Taking

And the site goes on to give an example of someone with a $5,000 balance taking virtually 25 years to pay off their credit card debt making only minimum monthly payments. That’s with absolutely no new transactions, penalties, or other fees.

That wasn’t a real-life example, because the bank deliberately chose simple figures to illustrate its point. But those figures are sensible, if not conservative (the credit card rate, for example is 12 percent) and the scenario is all too real.

And Then There Were Two

Most of the provisions of the new Credit CARD Act came into force Monday. And that was the day that Discover Financial Services chose to unveil its new website, which is designed to promote responsible credit card use among its customers.

This website, according to a company press release, offers a number of informative articles and videos that could assist cardholders in managing their money better. And it also provides some online tools that genuinely could be helpful. The press release describes these:

• The Spend Analyzer: this tool offers cardmembers a clear, visual way to track and compare their card spending so they can make informed spending choices
• The Paydown Planner: this option helps cardmembers create a simple plan to pay down their balances
• The Purchase Planner: this tool helps cardmembers understand how a large purchase can affect their account

Good Credit Card News

Not everyone welcomes this week’s new credit card regulations. Some believe that government regulation is rarely effective and often brings unintended consequences.

But it is hard to see how the greater openness and transparency ushered in by the Credit CARD Act’s Disclosure provisions can be anything other than widely beneficial. And, anyway, Credit CAR Act would have been a terrible acronym.

Published 02/25/10 (Modified 04/23/12)