Credit CARD Act: Good or Bad?

The Credit CARD Act Of 2009 is a credit card law that aims to provide consumer protection against unfair treatment of credit card companies and banks regarding unreasonable rates and fees. It was signed by President Barack Obama on May 22, 2009 and took effect on February 22, 2010.

Simply put, the law was enacted to protect credit card users against the credit card companies overcharging penalties and unfair interest rates. Credit card issuers are only allowed to charge over-the-limit fees only on exceptional situations.

The new federal law created criticisms among credit card users, analysts and some officials.

Though the act aims to protect customers from overcharged fees and penalties, it does not limit price controls, rate caps or fee setting. The act does not apply to business or corporate credit cards and is only applied to personal credit cards. Some banks are aware of the loopholes of the act and are now acting cooperative while designing new ways to gain profits from their customers.

Many Americans feel that the banks are acting nice when the banks suddenly offering budget-saver credit cards but are eventually raising their interest rates before the law became effective. The issue is a hot controversy and the people believe that the Congress needs to pass a real law that would stop the abuse of these money-hungry banks.

Merchants, especially those belonging from the small scale, are also complaining of the overcharged merchant fees from credit card companies. Merchants are usually charged up to 2.5 per cent of customer purchases for merchant fees, but in some instances, these merchants are forced to pay 3 to 4 per cent. The Congress has found time to set a cap for those fees. Senator Richard J. Durbin sponsored a bill which was approved by the US Senate setting a cap on merchant fees and putting debit card “swipe-fees” under the control of the Federation Reserve. “Small businesses and their customers will be able to keep more of their own money. Making sure small businesses can grow and prosper is vital to putting our country back on solid economic footing,” Senator Durbin said.

This caused uproar from the banks. The CEO for the American Bankers Association, for told the media that “In order for banks to cover their basic costs, it will have to be charged back to the consumer.” Banks rely on swipe fees for revenues as due to the changes they have to go through due to the credit card act passed earlier this year. They also claim that the new bill will hurt customers.

Merchants disagree. Swipe fees hurt both the merchants and the customers. In 2009, the members of the National Association of Convenience Stores have paid a total of $7.4 billion for swipe fees. Merchant costs became the second highest expense of the industry, with wages and salaries numbering the first.