🔬 THE MYTH & WHY IT MATTERS

THE MYTH: “The Credit Card Act of 2009 (CARD Act) is a consumer protection law that has significantly benefited consumers by increasing transparency in credit card practices, limiting fees and interest rate increases, and providing more protections for young adults and college students.”

🧪 TESTING THE NUMBERS: THE REAL CONSUMER IMPACT

Data Note: The most recent comprehensive consumer cost data is from 2022, as reported in the CFPB’s 2023 biennial Consumer Credit Card Market Report. The CFPB releases these comprehensive market analyses every two years, with the 2023 report covering market activity through the end of 2022. More recent quarterly data shows the trends continuing upward.

Record-Breaking Consumer Costs

In 2022, credit card companies charged consumers more than $105 billion in interest and more than $25 billion in fees, with total outstanding credit card debt eclipsing $1 trillion for the first time.

Impact per Consumer:

• For consumers who carried a balance, they paid about 20% of their average balance in interest and fees over the course of the year
• Many cardholders with subprime scores paid 30 to 40 cents in interest and fees per dollar borrowed each year
• Large banks are charging interest rates 8 to 10 points higher than small banks and credit unions

The $25 Billion “Success Tax”

A recent CFPB analysis reveals that major credit card companies earned an estimated $25 billion in additional interest revenue by raising APR margins beyond historical norms.

Understanding APR Margins: An APR margin is the difference between what credit card companies charge consumers and their cost to borrow money (usually tied to the prime rate). Think of it as their profit markup. If the prime rate is 5% and they charge you 20%, the margin is 15%. The CFPB found these margins hit an all-time high of 14.3% in 2023, compared to 9.6% in 2013.

This “excess” revenue represents money that came directly out of consumers’ pockets due to the industry’s response to CARD Act restrictions – they couldn’t raise fees as much, so they increased their profit margins on interest instead.

The Substitution Effect in Action:

Here’s the crucial point most people miss: junk fees were largely replaced with even more expensive, legally sanctioned costs. While the CARD Act restricted visible fees that made headlines, it left interest rates largely unregulated. Credit card companies simply shifted their revenue extraction to the unrestricted channel.

• What they eliminated: Junk fees worth ~$16 billion in savings over several years
• What they added: $25 billion annually in excess interest revenue
• Net consumer impact: Significantly negative – consumers now pay far more overall

Why Interest Rates Were Left Unrestricted:

Unlike fees, credit card interest rates face virtually no federal restrictions. Due to a 1978 Supreme Court case (Marquette National Bank v. First of Omaha) and subsequent federal laws, credit card companies can charge rates allowed in their home state to customers nationwide. This is why many major issuers are headquartered in Delaware and South Dakota – states with no usury caps.

The Reality Most Consumers Don’t Know: There is no federal law limiting credit card interest rates for most Americans (except military members who get a 36% cap). State usury laws are largely preempted by federal banking regulations, meaning credit card companies can essentially charge whatever rates the market will bear.

📈 TIMELINE ANALYSIS: HOW THE INDUSTRY ADAPTED

The Law’s Immediate “Success” (2009-2012)

The CFPB found that between 2009 and 2012, credit card interest rates increased from 16.2% to 18.5%, while the “total cost of credit” decreased by 2 percentage points due to eliminated fees. This looked like a win for consumers.

The Long-Term Reality (2012-2025)

Once the industry fully adapted to the new rules, consumer costs skyrocketed:

• 2012: 18.5% average rates
• 2024: 20.79% peak (all-time high in August)
• 2025: 22.73% average for new offers
• APR Margins: Rose from 9.6% (2013) to 14.3% (2023) – all-time high

The Industry Insider Admission

The American Bankers Association acknowledged the trade-off in 2013: while “the CARD Act has provided clear and significant benefits to consumers,” there were also “significant tradeoffs, specifically, higher costs and less availability for credit card credit.”

What Economic Research Revealed: Academic studies found that the CARD Act reduced “price responsiveness” among credit card companies, leading to greater price dispersion and higher markups – exactly what you’d expect when fee competition is restricted but rate competition isn’t.

🛡️ WHAT THE CARD ACT ACTUALLY ACCOMPLISHED

Limited Genuine Successes ✅

• Eliminated over-limit fees: Saved consumers $9 billion over 3 years (2011-2014)
• Reduced late fees initially: Average dropped from $33.08 to $26.84 by 2012
• Improved transparency: Better disclosures and clearer payment allocation rules
• Young adult protections: Reduced predatory marketing to under-21 consumers

The Larger Failure Pattern ❌

Industry Response: Credit card companies did exactly what economic theory predicted – they shifted revenue from restricted areas (fees) to unrestricted areas (interest rates).

The Substitution Math:

• Savings from eliminated fees: ~$16 billion over several years
• Additional costs from higher rates: $25 billion annually in excess margins alone
• Net result: Consumers pay significantly more overall

Who Actually Benefited?

The CFPB data reveals the real winners and losers:

• Winners: Consumers who pay balances in full (earned 73% of rewards, paid 6% of interest/fees)
• Losers: Consumers who carry balances (paid 94% of interest/fees, earned 27% of rewards)

The Cruel Irony: The law designed to protect vulnerable consumers ended up making credit more expensive for the people who need it most.

🔍 KEY FINDINGS: THE SURPRISING POLITICAL LANDSCAPE

This is a fascinating case study in how data can transcend partisan lines! Our research reveals unexpected political dynamics around the CARD Act:

The Data Itself: Surprisingly Non-Partisan ✅

• Democratic CFPB (under Biden) published the data showing record $130B costs
• Republican industry groups acknowledge the trade-offs occurred
• Academic research confirms substitution effects regardless of political affiliation
• Federal Reserve data shows rate increases (non-partisan agency)

Where Politics Diverge: Interpretation & Solutions 🔄

🔵 Democratic/Progressive Response:

• Acknowledge the costs BUT focus on protections gained
• Blame industry greed for excessive rate increases beyond what CARD Act required
• Propose MORE regulation: Sen. Bernie Sanders, Sen. Elizabeth Warren, Rep. Alexandria Ocasio-Cortez all want 10-15% interest rate caps
• Sen. Elizabeth Warren recently applauded CFPB’s $8 late fee cap (addressing part of the problem)

🔴 Conservative/Republican Response:

• Focus on unintended consequences as proof regulation backfires
• Prefer market solutions over additional price controls
• Heritage Foundation/Cato Institute would likely use this as evidence against financial regulation
• Industry groups oppose rate caps as “government price controls”

The Plot Twist: Unexpected Bipartisan Agreement 🤝

BOTH Sen. Bernie Sanders (I-VT) and Sen. Josh Hawley (R-MO) introduced a 10% credit card rate cap together! Rep. Alexandria Ocasio-Cortez (D-NY) and Rep. Anna Paulina Luna (R-FL) did the same in the House.

Even President Donald Trump campaigned on credit card rate caps, showing this crosses traditional party lines.

Bottom Line for Analysis: The real partisan divide isn’t about whether costs increased (they did), but about what to do next:

• Democrats: “Industry exploited the loophole, need MORE regulation”
• Republicans: “This proves regulation backfires, need market solutions”
• Populists from both parties: “Just cap the damn rates!” (Sen. Sanders + Sen. Hawley, Rep. AOC + Rep. Luna)

This makes our analysis stronger – we’re not taking a partisan position, we’re showing the data and letting people draw their own policy conclusions.