Many in the credit card industry complained that the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act which became effective in July 2010 would be highly detrimental to their profits. The CARD Act severely limited the industry's ability to raise interest rates and charge fees without prior notice. However, a new study suggests that their claims may be false. In fact, what may have caused significant decreases in profits for credit card companies were their lending policies, which created overwhelming debt for consumers in Texas and everywhere else in the nation.
Before the CARD Act, credit card companies were essentially allowed to dramatically increase their rates for cardholders at will. This caused required minimum monthly payments to skyrocket for some consumers. For example, Chase increased one retired cardholder's minimum payment to $900 per month from $373.
However, this type of practice eventually led to significant numbers of people defaulting on their credit card debt payments, which forced the credit card companies to write off inordinate amounts of debt as uncollectible. In 2010, these companies were forced to write off three-times as much debt as uncollectible as they did in the prior four years combined.
The new study released by the Center for Responsible Lending showed that deceptive lending practices were directly linked to large profit losses for credit card companies from 2006 to 2010.
Also, the bigger the lender, the more likely they purportedly engaged in deceptive practices causing overwhelming debt for consumers. The top ten credit card companies were cited for committing the most egregious lending practice. Smaller credit card companies tended to offer credit rules that were easier to understand for consumers in Texas and other parts of the country.
Source: DailyFinance, "Nasty Credit Card Policies Are Bad for Business," Amanda Alix, June 6, 2012