CARD Act Reduces Overlimit, Boosts Annual Fee Income
Financial institutions made $2.5 billion less in overlimit fee income in 2012 compared to 2008, according to the Consumer Financial Protection Bureau’s review of The Credit Card Accountability Responsibility and Disclosure Act’s impact on the credit card market.
“It is clear that the CARD Act has effectively eliminated overlimit fees as a source of cost to consumers and revenue to issuers,” said the report released on Wednesday.
“Had the incidence of overlimit fees remained at 2007 levels of 6.4% and had average overlimit fees remained at their 2008 levels, consumers whose accounts are included in the Credit Card Database (CCDB) would have paid an estimated $2.5 billion more in overlimit fees in 2012 than they actually paid,” the CFPB said.
The report noted, however, that the $2.5 billion difference might be overstating or understating the impact of the act, which was signed into law by President Obama in May of 2009.
“We cannot address the counter-factual question of whether, and if so to what extent, the incidence of overlimit fees would have declined independent of the CARD Act,” said the report.
This is the first review of the consumer credit card market done by the CFPB, required under the CARD Act.
“The report draws upon publicly and commercially available data as well as data obtained by the Bureau through its supervision,” said the CFPB.
While overlimit fees have decreased for consumers, annual fees on credit cards have increased.
“The decline in late and overlimit fees was offset to some extent by an increase in the size and frequency of annual fees,” said the CFPB report.
“From Q2 2008 through Q1 2010 the percentage of accounts on which annual fees were charged remained fairly constant,” it said.
The percentage of accounts with annual fees started to increase when major implementation of the CARD act began in Q2 2010.
“The average dollar amount of annual fees increased from $32.48 in 2008 to $34.19 in 2012. Using a baseline incidence rate of 3.0% from 2008 through Q1 2010 compared to the 3.75% rate in the year 2012, the Bureau can estimate the increase in annual fees,” said the report.
The CFPB estimates that financial institutions made an additional $475 million in annual fees for 2012, compared to 2008.
“Due to the increase in both the incidence and average dollar amount of annual fees, consumers with accounts in the CCDB paid an additional $475 million in annual fees in 2012,” said the report.