Reflections on Credit CARD Act Day

Today most of the provisions of the Credit CARD Act went into effect.  It’s been widely noted in various media outlets.  The CCARD Act will surely cause some changes in the credit card industry’s business model.  I think there’s scant evidence that it’s going to cause the total cost of credit to go up, however.  The card industry has long been so clever in its product design that it wouldn’t leave any available consumer surplus on the table.  Instead, I think we’re going to see reconfigured pricing structures and smaller profit margins for card issuers (meaning greater consumer surplus). 

The CCARD Act’s fully effective date is time for some reflection on how financial services reform has progressed.  Two thoughts: 

First, we should recognize that the Credit CARD Act is the only regulation of the financial services industry to occur since the financial crisis.  That’s troubling.  There were and continue to be lots of problem practices in the card industry, but the crisis wasn’t about credit cards.  Federal regulatory agencies have passed some important regs, but they’re playing catch-up for a decade of neglect. 

Second, card issuers are going to engineer around the CCARD Act as much as they possibly can.  How fast will we see those changes?  (Some changes are already emerging, as a CRL study notes).  And how will regulators react?  Will the Fed (and OTS and NCUA) be more aggressive in using their UDAP powers?  Or will they only use them when Congressional action is threatened (as occurred with the CCARD Act)?  In other words, has a new regulatory culture emerged or are the existing consumer protection agencies unable/unwilling to respond to new billing tricks and traps as they appear?  How the agencies respond going forward is another test of whether we can rely on the existing regulatory structure or whether the only way we will get real consumer protection is a stand-alone Consumer Financial Protection Agency.