The National Consumer Law Center, a longtime opponent of some credit union payday loan alternative programs, has recommended qualities that a credit card that is "safe" for consumers would have. The eleven qualities are those which many credit union-issued cards have already.
Among the qualities listed in "Beyond the Credit CARD Act: Features of a Safer Credit Card" are things like a "single, reasonable interest rate" and "few and modest fees that cover relevant costs but are not hidden profit centers."
"These goals...build upon the protections that the Credit CARD Act has achieved and address the improvements that remain," the organization wrote. "Some of these recommendations are appropriate for every card. Some could be features of a safer card for more vulnerable consumers," the organization added.
NCLC said the recommended cards would step into some crucial gaps in consumer protections left by the Credit CARD Act of 2009. For example, while the CARD Act prevents card issues from raising interest rates on existing balances for any reason or no reason and cannot change introductory fixed interest rates for the first year of card life, the law still allows interest rates for new purchases to be increased at any time and for any reason, different rates buried in fine print for cash advances, and large interest rate increases on consumers least able to afford them, the group said.
To counter these practices, NCLC urged card issuers to offer one interest rate for all types of balances and curtail the use of penalty rates. It also praised the 18% interest rate cap currently covering federal credit unions.
"The 18% rate that applies to federal credit unions is a good model. An 18% rate is already quite high considering the rate of inflation in past decades," NCLC said, adding, "with a single rate that does not change precipitously, credit cards will be less risky for consumers and will avoid unfairness, bait and switch tactics, and confusion over different rates for different types of balances."
NCLC expressed particular criticism for the range of new fees that some card issuers have adopted after the implementation of the CARD Act. Among the fees that the organization criticized were "hair trigger" late fees that include fees when electronic payments are not processed on holidays or weekends, cash advance fees of as high as 7% on some cards and "application fees" of up to $95 on some subprime cards. NCLC called for cost-based fees instead.
"Other fees should be eliminated or limited to amounts to cover the cost of services beyond ordinary use of the card," NCLC wrote, "Cash advance fees would be limited to the lost interchange fee not received on a cash transaction. A fee for expedited replacement of a lost card would cover the cost of express mail. Fees like foreign transaction fees, which have no basis in actual costs, should be eliminated."
But consumers might view some of the changes that NCLC advocated more as idealistic examples of what cards could be more than as examples of cards they would want to use.
For example, the NCLC recommended safer cards should have minimum payments that result in a card debt's being completely repaid in five years. Five years "is the period that banking regulators have long used for credit card workout programs," NCLC pointed out, adding, "consumers should also be offered the choice of cards with shorter repayment periods, such as one or three years."
But studies have suggested that increased monthly payments would also discourage consumers from using the cards at all, reducing their utility for both issuers and consumers.
The organization also decried the continuing inclination of some issuers to change card terms with very little notice.
"Even consumers who do their homework and carefully compare different cards cannot protect themselves, because credit card issuers reserve the right to change terms with little notice," NCLC complained. "The Credit CARD Act imposes some limits on when and whether changes can be made, discussed above. Consumers also have the right, if they act promptly, to reject changes to fees, interest rate increases (unless the consumer is 60 days late) or other significant terms, and can repay the balance under the old terms (with limited minimum payment increases) if, as is likely, the issuer closes the account.
"But credit card issuers retain the ability to change the terms for new transactions at almost any time and for almost any reason. Changes in terms notices tend to come buried in fine print and are often not noticed by consumers. Merely continuing to use the card is deemed to be acceptance of the new terms, which goes against the traditional contract law principle that mutual agreement is needed to form a contract," the organization wrote.
As remedies, NCLS recommended card terms should be set for a fixed period of between one to three years and then, when changes are made to the card agreement, they should be explicit, clear and conspicuous so that consumers could comparison shop. In addition, NCLC recommended that when consumers agree to changes, they should have to do so explicitly. Merely not saying anything or continuing to use the card should not be sufficient, the group said.