New in 2009, the CARD Act requires credit-card companies to use more reasonable practices in how they acquire and manage their customers. Prior to 2009, some companies would use low teaser rates to attract customers with questionable credit worthiness, and then later hike up the rates. When a customer was late on a payment, large fees and cut credit limits were the results.
First, this approach was never very endearing to consumers. Second, this approach represented a very inefficient way to manage business risk. The CARD Act may be changing all that.
Today, credit-card companies are doing their homework up frontbefore a customer is issued a new card. By being more discriminating, fewer consumers are being set up for financial failure.
The results are encouraging. Karen Weise highlights some key metrics (The Law Credit-Card Companies Hate to Love Bloomberg Businessweek 7/30/128/5/12, pp. 2728):
[The CARD Act] helped reduce late payments to the lowest level on record. Charge-offs . . . are at their lowest since the end of 2006. In May the industry identified $276 million in charges they assume wont be paid, down from a peak of $821 million in August 2009. (p. 27)
For an industry that has caused so many consumers so much frustration, I would think credit-card companies would want to do everything possible to improve public relations. It appears the CARD Act has prompted some of those positive behaviors.
Dont misinterpret me; I know there is blame on both sides of the equation! Nevertheless, by forcing the credit-card companies to rethink their strategies, and by responding to consumer complaints, the Card Act seems to be a win-win.
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