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Credit CARD Act One Year Later

Account balances are down, but interest rates and some fees are up

Q. What impact has the Credit CARD Act had since it took effect last year?

A. With Feb. 22 marking the one-year anniversary since most provisions of the plastic-regulating law took effect, first the good news: Americans cut their credit card balances in 2010.

All told, consumers were carrying about $65 billion less on their cards at the end of 2010 compared with a year earlier, continuing a downward trend that began in 2009.

The recession and its resulting penny-pinching certainly played their part — people have been buying less. But there was impact from at least one key mandate of the federal legislation, too: Monthly bills now have to show how long it would take you to pay off your balance if you send just the minimum due.

Because of that attention-capturing (and often frightening) figure, 16 percent of cardholders say they now consistently pay higher amounts than they used to, according to a recent survey by the nonprofit group Consumer Action.

Overall, 60 percent of people carrying a balance say they paid down a "significant" amount in the past year, and the majority of respondents believe their bills are now easier to read and understand.

Now the bad news: As Americans reduce their card balances — and as the law cracks down on penalty fees and other practices — card issuers have responded by raising interest rates and some fees.

The average variable interest rate increased to 15.06 percent in 2010 from 13.20 percent in 2009, even as the benchmark prime rate remained the same, at 3.25 percent, reports the consumer advocacy group.

Although late fees are now capped at $25 (down about a third from what was charged in 2009), balance transfer fees are up, now ranging between 2 and 5 percent, as opposed to 2009's average of 2 to 3 percent.

And for cards with an annual fee, there was an average $2.50 hike to an average $65.

Targeting college students

Another provision that took effect in February last year was aimed at curbing freebies and other incentives in preapproval credit card offers mailed to anyone under age 25, especially college students. Under the new rules, people under 21 must prove that they have sufficient independent funds to open a credit card or have a parent or family member cosign their contract.

But in surveying 300 college students, University of Houston researchers found that three in four respondents said they had received a credit card offer since the beginning of 2010 and roughly the same number reported seeing card issuers marketing to students off campus.

Sid Kirchheimer writes about consumer and health issues. Check out the Ask Sid archive. If you don’t find your answer there, send a query.