No. 8: New Credit Card Laws

Credit card debt has become as American as apple pie and baseball — the big difference being that no one likes it.

That hasn’t stopped us, as a nation, from piling up billions of dollars of debt. Once upon a time, the credit card was viewed almost exclusively as a means to finance a needed purchase, which would be diligently paid off over time, with interest. But with widespread credit growth through the second half of the 20th century, with millions upon millions of cards issued, credit cards transformed into something very different.

Charge cards, for too many Americans, became a primary method of paying for everything, from a new TV to a cup of coffee. No purchase was too big or too small. Don’t have cash? That’s what MasterCard and Visa are for.

Here are some numbers for perspective: Data released by the Federal Reserve earlier this year, and generously bundled by CreditCards.com, showed that consumers across the nation held nearly 610 million credit cards. The total amount of revolving debt in the U.S., almost all of which was on credit cards, was $852.6 billion. (For more eye-popping figures, check out some of the numbers and prepare to shake your head in disbelief.)

Needless to say, that’s a lot of borrowing on plastic. All was well until it wasn’t, not unlike the situations with unemployment, collapsed home prices, and the failures of dozens of poorly capitalized banks. Thousands of us have now learned the hard way just how much of a burden credit card debt can be when things get tight. For years lenders had all the power, and again, it wasn’t really a major concern — they loaned the money; we spent it — until the near collapse of the U.S. financial system in September 2008 shed an extremely bright light on our nation’s bad habits.

We realized too late that we had a serious problem, and consumer debt was no small part of it. Debt holders panicked: How can we pay it back? Lenders panicked: Will we be paid back? Suddenly that cozy relationship between the money granters and the grantees soured badly. Legislators in Washington knew a crisis was at hand and something needed to be done to avert it. The solution they came up with was the Credit Card Accountability, Responsibility, and Disclosure Act of 2009.

In general, the CARD Act was meant to protect consumers from a range of penalties and abrupt changes in interest rates. While part of the measure went into effect last year, the majority of its components fell into place in February 2010.

For the most part, the act has been welcomed by consumer advocates, but it’s far from a permanent refuge for borrowers who don’t want to pay. Lenders have some clearly spelled-out rights, and it’s worth remembering that “responsibility” is in the act’s name, and it applies to both sides of the credit equation.

Let’s face it: We all bear some blame, both the customers who borrowed too heavily and the banks who handed out cards too readily. With the CARD Act, your lender won’t be able to kick you to the curb without some work, but you won’t be able to open a shiny new $10,000 credit line without earning the privilege.

That’s the simple beauty of the law. Accountability, responsibility, fairness, and honesty matter. With credit cards, we didn’t seem to be able to figure that out on our own. Now there’s a law to keep us all straight.

–Chris Nichols

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