In the spring of 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009, a sweeping law that improved transparency in credit card contracts and ended practices that cost consumers big money in fees and interest. Things like increasing interest rates on existing balances mostly came to an end. President Obama led the charge in ushering the legislation through Congress, where it passed the Senate by a 90-5 vote.
The law did not, however, include a rating system for consumers to evaluate cards.
The president's promise to create a rating system did not include many specifics, but it sounded like he envisioned a simple letter grade or number scale that would easily show people which cards offered the best contracts and also alert them to cards with high penalty fees or arbitrary interest rate hikes.
The problem, said one consumer advocate we talked to, was that nearly every credit card company did those things.
"People like me were not convinced that merely rating credit cards would help consumers avoid these abusive practices," said Travis Plunkett, legislative director for the Consumer Federation of America. "These were very complicated practices."
So even better than providing a simple means of rating credit card issuers, the law "required them to clean up their act," Plunkett said, by banning the practices that would have resulted in a negative rating.
The law's top achievement was prohibiting companies from increasing the interest rate on existing balances under most circumstances, he said. It also led to a lowering of penalty fees, which were being assessed not just to discourage late payments but to make profits for the credit card companies.
Third, he said, the law helped people who had multiple pots of debt at different interest rates. Many companies were taking payments from those customers and applying them to the debt with the lowest interest rate, so the other balances never came down and continued accruing the higher interest. Now card companies have to allocate payments to the highest interest rate debt first, Plunkett said.
The law is also responsible for the new information you see on your statement, telling you how long it will take to pay off your bill if you make only the minimum payment and how much you'd really pay over the long term.
Kathleen Day, spokeswoman for the Center for Responsible Lending, agreed that the law is better than a rating system.
"It goes way beyond that promise," she said.
We think so too. Even though Obama pledged to create a system to rate credit cards, a law that stops anti-consumer practices is a better outcome. Consumer rights advocates said they felt Obama exceeded a simple ratings system. We rate this a Promise Kept.