Independent card consultant Tim Kolk has conducted an analysis which, he says, shows that the 2009 Credit Card Accountability, Responsibility and Disclosure Act has prevented credit card interest rates from falling as much as interest rates for other consumer loans.
“Since 2008, benchmark auto loan rates and mortgage rates have declined by 30% and 42% respectively while credit card interest rates have declined by only 3%, Kolk wrote in the analysis. “If credit card interest rates had declined in an amount proportional to the mid-point decline of other lending products, then average credit card interest rates would have declined by 410 basis points since 2008.”
Kolk argues that the CARD Act has kept interest rates higher by increasing the costs of administering a card program, making fixed rate cards significantly more risky to issue and by dramatically increasing the risk profile of credit card lending.
“Essentially, now you have to predict a consumer's risk behavior out for four years,” Kolk contends, “where before you had to only predict it for about 45 days.”
Kolk maintains that prior to the CARD Act, pricing on existing balances could be changed in as little as 45 days whereas after the implementation of the Act it would take a card issuer up to four years to reprice a card portfolio.