Newsflash: Regulating Banks is Good for Credit Card Customers
When Congress decided to reign in the abuses of the credit card industry four years ago through the Credit Card Accountability Responsibility and Disclosure Act (the Card Act), a lot of industry observers declared that increased regulation would lead to high costs for consumers overall. Not so. As reported in the New York Times, a recent study by Neal Mahoney, an economist at the University of Chicago found that federal regulation of credit card abuses has been unequivocally beneficial to consumers, to the tune of $20 billion per year.
Before the Card Act, megabanks would regularly charge excessive fees and interest rates to cardholders, particularly low-income cardholders. For example, banks would regularly jack up the interest rate on credit card holders for no reason – the cardholders were not delinquent in their payments – often to rates exceeding 25%. Banks also played with the due dates for payments to engineer more late fees, and charged customers extra for paying by phone or over the internet. These interest rates and fees boosted profits at megabanks, and acted as an enormous transfer of wealth from mostly working class and poor Americans to our wealthiest financial institutions, helping to drive record salaries for CEO and upper management.
When the Card Act passed in 2009, the industry warned that consumers would be penalized overall with less access to credit and higher rates in general. Overall, that has not happened. While banks have pulled back on the credit lines offered to riskier customers and been a bit stricter about giving out cards on the whole, they’ve continued to offer competitive rates to lure in new customers. The major difference now is that credit card customers are not being ripped off on a regular basis with no recourse. Collectively, these customers have $20 billion more in their pockets than they would have had if banks were permitted to keep overcharging them.
The regulation of the credit card industry demonstrates that cracking down on the worst practice of megabanks is good for consumers, and that more regulation of the industry is needed. Overall, megabanks are still charging high fees on bank accounts and are failing to lend to the small businesses that need capital to grow, while continuing to support coal mining, tar sands excavation, and other destructive activities.
For these reasons, many consumers have long ditched megabank cards. For any consumer that wants to break with their megabank now and support responsible institutions, they can choose from a growing number of credit cards issued by community development banks and credit unions. Green America’s Take Charge of Your Card campaign has options from leading banks and credit unions nationwide. Apply for a responsible card today, and take our pledge to let us know that you are breaking up with your megabank.