Entries in CARD Act (2)


Credit Card Disclosures: Effective or Not?

Comstock/Thinkstock(WASHINGTON) -- Do credit card disclosures influence consumers’ financial behavior? And if so, do they influence it for the better or the worse? Both, a new study finds.

The Consumer Financial Protection Bureau meets Wednesday to discuss the credit card marketplace, a year after the effective date of many of the provisions of the Credit Card Accountability Responsibility and Disclosure Act (“CARD Act”). Those provisions include a requirement that lenders disclose to consumers on their monthly statements the difference in cost between making the minimum payment due versus some higher amount.

A study by the Harvard Business School addresses such disclosures; it finds they indeed affect consumer behavior, but not always in the way regulators might expect. The findings come from a non-controlled experiment involving 132,000 members of the Affinity Plus Federal Credit Union of Minnesota with a collective portfolio of some 30,000 credit cards.

In the experiment, card holders were given a disclosure explaining the difference in cost to them between paying the monthly minimum and the amount they would need to pay in order to retire their whole card balance in three years.

The sample disclosure showed that if they paid the minimum, it would cost them $6,534 over 14 years to pay off their balances, but that if they paid more ($147), it would cost them $5,297 (a savings of $1,237) over three years.

The results of the experiment were mixed.

Given the disclosure, more consumers opted to pay more than the minimum, and some of them, some of the time, chose to pay the 3-year payoff amount. But consumers who chose this option tended to be those with higher credit balances, those who paid more slowly and those with lower credit ratings. Even when paying the higher amount, they were consumers going ever more deeply into debt.

The reason, says Harvard professor Dennis Campbell, one of the study’s authors, is that lenders revise the 3-year amount with every monthly statement. “It’s a moving target,” he says. Not all consumers understand that.

“We can confidently say that more consumers paid the larger amount,” says Campbell. “But what type of disclosure is best is an open question.” A more useful disclosure, he suggests, might explain the fact that the 3-year target amount is being constantly reset, with the result that consumers who pay it will always be three years away from full repayment, never closer.

Copyright 2012 ABC News Radio


Business Credit Cards Could Jeopardize Your Personal Credit Rating

Stockbyte/Thinkstock(WASHINGTON) -- Users of business credit cards are increasingly being subjected to potentially deceptive and harmful practices by card issuers, according to a study by the Pew Charitable Trusts.

"The high volume of offers that are going out to U.S. households is placing people at risk, whether you are an individual employee who is trying to track your work-related expenses or whether you're a small business owner who is taking out an account for yourself and your employees," said Pew's Nick Bourke, director of Pew's Safe Credit Cards Project, in a statement.  "You're going to be personally liable for those expenses if you get a business credit card."

The non-profit consumer organization took a look at credit card issuers' practice of direct mail solicitation for business credit cards, which may come labeled for corporate, small business, or professional use.

Offers for business credit cards have skyrocketed after new protections went into effect in 2009 to protect consumer credit card users.  The Credit Card Accountability Responsibility and Disclosure Act, CARD for short, mandated consumer protections to combat harmful, unfair, and deceptive practices.

Pew researchers say the CARD Act does not extend to business credit cards, leaving many households at risk.

Consumers targeted for business credit card may be unaware of a card issuers' ability to change account terms in the first year, charge penalty fees for existing balances, and hold an individual liable for money owed.

To help consumers understand their financial responsibilities, Bourke says "credit card protections should be extended whenever there is a personal liability."

Copyright 2011 ABC News Radio

ABC News Radio