The Credit Card Accountability, Responsibility and Disclosure Act, or the CARD Act, was signed into law last year with great fanfare. It was intended to protect consumers from lender practices that often made it difficult or impossible to pay off unmanageable credit card debt. The law limits the banks’ ability to raise interest rates on existing balances or on new accounts, caps late-payment penalties at $25, and requires more transparency about costs.

While consumer advocates still believe the law is a good idea, a recent analysis by the Associated Press found that the CARD Act has made access to credit much more difficult and expensive for those with less-than-stellar credit scores.

Banks increasingly shifting their credit card business toward the rich, offering fewer, more expensive options to people with lower credit scores

It’s no surprise that credit card issuers prefer customers with the highest credit scores. It’s not much of a surprise that they reacted to the CARD Act restrictions by increasing the cost of credit for average customers, either — in fact, the banks told Congress they would do so before the CARD Act was passed.

Still, the AP found that banks have ramped up their offers of perks and rewards to big spenders. At the same time, they’re smacking the more average consumer with higher interest rates, lower credit limits and new fees — and discontinuing businesses that offer credit options to people who’ve had past trouble with credit card debt.

Among the findings in the AP’s analysis:

  • Before the CARD Act was passed, about 44 percent of all credit card offers were mailed to those with credit ratings of A (excellent). Now, 64 percent of all offers are mailed to this group, and sweetheart deals are on the rise for those who have a good credit history and plenty of money to spend.
  • Those with credit ratings of B — consumers with solid credit histories but with more modest spending habits — are still getting plenty of credit card offers, but the interest rates and annual fees are higher, even for cards without special features. A year ago, most people with B credit could easily find cards with no annual fee; today most cards marketed to this group have an average annual fee of $39 to $59. The average interest rate as gone up to 22.57 percent from 19.07 percent last year.
  • For those with poor credit (grade D), the availability of credit is drying up. The secured credit card, which used to be used to rebuild credit after a financial setback, are much less available — and more expensive. Long-time player First Premier is no longer offering new secured credit cards. In addition to requiring a deposit and having a low credit limit, new Capital One secured credit cards now often have activation fees.

Consumer advocates say that these post-CARD Act developments are still an improvement. Before the law was passed, banks routinely used bait-and-switch tactics like short-term introductory interest rates that tended to catch borrowers off guard and send them quickly spiraling into unmanageable debt.

The price of a credit card may now be higher for less desirable consumers, says Ruth Susswein of Consumer Action, but at least that price is more transparent now.

Source: Associated Press, “Looking for a credit card? It pays to be rich,” Candice Choi, February 21, 2011