In May 2009, President Obama signed into law the Credit Card Accountability Responsibility and Disclosure (CARD) Act, a reform package to protect American consumers from abusive practices, misleading advertising and marketing, and more.
Some elements are enforced by the Federal Trade Commission, an independent regulatory agency dating to the Wilson Administration in the early 20th century Progressive Era. The rest is now enforced primarily by the Consumer Financial Protection Bureau created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Bureau, perhaps best known for being a major agenda item by Elizabeth Warren before she ran for Senate, is under the aegis of the Federal Reserve, another Progressive Era institution.
The Credit CARD Act, which passed with bipartisan support not long after the height of the credit crunch and the credit carpet being pulled from under average American consumers, sought to curb a wide range of problematic behaviors by the card companies.
- Bans Unfair Rate Increases
- Prevents Unfair Fee Traps
- Plain Sight /Plain Language Disclosures
- Protections for Students and Young People
It also outlined some core principles for regulatory enforcement of the law:
- First, there have to be strong and reliable protections for consumers.
- Second, all the forms and statements that credit card companies send out have to have plain language that is in plain sight.
- Third, we have to make sure that people can shop for a credit card that meets their needs without fear of being taken advantage of.
- Finally, we need more accountability in the system, so that we can hold those responsible who do engage in deceptive practices that hurt families and consumers.
Since the Credit CARD Act took effect, there have been a number of rulings and enforcement orders by Federal regulators against some of the credit card companies for failure to comply with consumer protections. These include failure to limit consumer fees and charges as required or to change policies on issuance of credit cards to minors and students, as well as violations of restrictions on fees and other terms of gift certificates, store gift cards, and general-use prepaid cards. Companies have also had to ensure their advertisements for private credit reports disclose that free credit reports are already available under Federal law.
Capital One, a particularly egregious employer of abusive practices and a well-known (even notorious) marketer of all kinds of cards and credit services, has been one example of a company forced to settle. The venerable American Express has also been forced to make big payouts for attempting to manipulate settlements and for other violations.
The latter got hit with another order today from the Consumer Financial Protection Bureau — which is good news for the consumers they have misled:
The Consumer Financial Protection Bureau has ordered American Express to pay more than $75 million to settle claims that it charged improper fees and misled its credit card customers over so-called add-on products like identity fraud protection.
American Express will have to refund $59.5 million to more than 335,000 consumers over what the bureau called “illegal credit card practices.” American Express will also have to pay a $9.6 million cash penalty to the bureau, according to a statement issued on Tuesday.
The Dealbook/NYT article above details which practices were cited in the enforcement order from the CFPB. Last year’s settlement by American Express was even bigger, at $85 million.
While it’s unfortunate that AmEx is still trying to mislead its customers and potential customers, in violation of repeated actions by the Bureau and other regulators, the system seems to be working better than before the Credit CARD Act was passed in 2009. Moreover, according to Warren, within the first year or so, most companies began complying with — or even going beyond — the law’s requirements. On balance, consumers are being better protected. And that’s great news for everyone.