The credit card act: When it comes to the government coming to the rescue of consumers we should all be careful what we wish for. At the height of the banking industry’s unpopularity during the financial crisis of 2008, Congress jumped on the opportunity to impose “consumer protections” in order to stop unfair and deceptive practices.

The resulting Credit Card Accountability, Responsibility and Disclosure Act (credit card act) may have made Congress appear as though they were our knights in shining armor; however, it has left many consumers bewildered and just as vulnerable, if not more.

While it may have sent a message to the banking industry that they are being more closely watched, the Act did little to prevent banks from shrewdly skirting many of its intended purposes – which were largely aimed at capping the amount they could charge consumers.

What we heard after the law was passed was that the Act would place limits on interest rates that banks could charge. What it really did was place limits on existing balances, but new balances were still open game. Even with the existing balances, the limit only applies to fixed rate cards.

Credit Card Act continued

It just so happens that the vast majority of revolving credit cards are issued with a variable rate.  Cards with variable rates can be raised at any time in response to changes in an indexed rate the bank follows. Of course, they can still raise your rates when if you become delinquent in your payments past 60 days. And, if you apply for a new card and you have less than very good credit, you will probably see some sky high rates.

We were also supposed to receive 45 day’s notice prior to a rate increase going into effect. What that would seem to mean is that we would have 45 days to pay down a balance and adjust spending on the card.  The reality is that they can start charging the higher rate as of your next payment date, which could be as soon as just two weeks.  Why include a provision that sets a requirement if it really doesn’t mean it?

There was also supposed to be a provision that limited the total amount of fees that could be charged on an account. But, the Act only specified the annual fee, allowing banks to increase or create other fees that would enable them to offset the loss of revenue from lower annual fees or interest rate caps.  Consumers actually ended up paying more in total fees and interest than before the Act.

That turned out to be so blatant that even Congress couldn’t ignore their own ineptness, so they recently passed an amendment to the credit card act that is supposed to place a cap on all fees so that can’t total more than 25% of your credit limit. Gee, thanks.

While it may have had the best intentions, Congress, once again, has shown that it’s meddling in consumer affairs is usually more of hindrance than a help. As consumers, we simply can’t rely on the myriad of confusing laws and bulging bureaucracies for our protection. The consumer protection has always been Caveat Emptor – let the buyer beware.