This past summer Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. In the bill, there were many laws that have limited what banks and credit card companies can charge customers. While now the consumer has more protection against late fees, overdraft fees, and other arbitrary rules, now we face a host of new more creative ways that banks are making up the difference. Once again, it is a clear example of unintended consequences thanks to new laws enacted by our politicians.
Credit Card Reform Has Cost Banks Billions Of Dollars
The Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD Act of 2009 was passed into law in May 2009. The Act was designed to promote a greater sense of transparency through clear disclosure of the credit card’s contract terms. The Act also required that credit card companies and banks show better billing and marketing practices. For example, the Act does not allow credit card issuers to charge consumers an inactivity fee, multiple penalty fees for the same transaction, or a late fee of more than $25 unless one of the cardholder’s last six payments was late. If you were late in one of those last six months, then the late fee can only go up to $35. The same is true for over draft fees. Before 2009, the typical fee for going over your credit limit was $39, and now it averages closer to $28. It is estimated that the banks will lose over $5.5 billion in revenue per year because of these two changes alone.
Banking Fees Have Been Hit By New Reform Laws Too
Some unpopular banking fees have been acted by new laws too. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which is more commonly referred to simple as the Dodd-Frank Act, is legislation will affect every financial institution that operates in this country. In fact, the bill is over 2,000 pages long and addresses topics ranging from bank overdraft rules, banking reserves that must be kept on hand, an increase of FDIC insurance, and many others. One of the most visible and most talked about aspect of the law refers to bank overdraft fees. In the past, banks have collected approximately $37 billion in 2009 alone in these fees. The Federal Reserve has already limited the amount of overdraft revenue a bank can generate with new regulations which prohibit financial institutions from charging consumers fees for paying overdrafts on ATM and one-time debit card transactions. The new Dodd-Frank Act will further stem the fee revenue costing banks another estimated $2 billion per year.
So, What Do All These Changes Mean To Consumers?
Some of the media and politicians have tried their best to paint banks and credit card companies in a lot of negative light recently after the passing of these laws. Many banks deserve it the lambasting, but some do not. We often forget that it is us, the consumers, who did not pay our credit card bills on time leading to the raising of the interest rates or that we were the ones who bounced our checks leading to over draft fees. But, there is another, far greater, second and third order effect that has now happened because of these laws. The banks are businesses and will not sit idly by while their revenue streams have shrunk. And, they haven’t. In fact, these new Acts are costing consumers in new ways. The average interest rate on credit cards has risen from 10.7% in April 2009 to 13.6% in September 2010. Credit card companies have also created new fees for things such as credit card replacement after you lose or damage yours to the tune of about $20 each time. Credit cards are not the only ones getting creative with fees thanks to these new laws. Banks are also raising other fees such as balance transfer fees. In 2009, the average balance transfer fee was 3% with a cap of $75. Now, banks and credit cards are charging an average of 5% with no cap on your transfers.
I only bring these points up to make consumers aware of the changing landscape with their banks and credit cards. We must always remember that banks and credit card companies are businesses and are run as such. When one fee disappears or is limited by laws enacted by Congress, new ones are sure to spring up. The second and third order of effects on these reforms will surely continue to cost consumers in the end.
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