Helping Americans With Credit Card Debt

Let’s concede up front that the Congress often doesn’t get it right. All the political back and forth, and the back room deals, too often result in sub-optimal policy solutions, and imperfect lawmaking. Today, though, I’d like to highlight the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 — legislation that went into effect on February 22, 2010. Although it was very much a product of compromise and could have contained even stronger consumer protections, it will nonetheless help a lot of people with credit card debt.

The CARD Act provides that consumers receive some basic protections such as 45 days notice of interest rate hikes, monthly statements that allow for 21 days each month before payments are due, and protection against interest rate increases (including increases that apply to existing balances). Credit card companies will also have to set up payment plans for consumers who opt to close their accounts, and when consumers fall behind and late payments do result in higher rates, the original, lower rates will have to be reinstated after six months of on-time payments.

There’s also an important change in the information that credit card companies are required to provide you that may not at first seem like a big deal, but this small change speaks volumes about the potential for good government to really help people to help themselves.

Here’s an example of the standard information that is now required on all credit card statements that highlights the fact that if you make only the minimum payment each month, you will pay a lot more in interest and it will take you longer — in many cases decades longer — to pay off your balance.

Let’s say you have a credit card charging 19.8% and have run up a balance of $4,800, and your credit card company is requiring a minimum payment of $124. Have you ever wondered how long it will take to pay off the balance? The federal law now requires that your credit card statement must include information about how long it will take to fully pay off your balance making minimum payments, along with the amount you would have to pay to eliminate your debt in 3 years. Both amounts assume no additional charges are made to your account.

Using the example above, making a typical minimum payment each month it would take 21 years to pay off the balance. However, and this is striking, by paying only an additional $54 each month, the payoff period shrinks to only 3 years.

You heard it right. And extra $54 a month and you can shave 18 years off the payoff period, and in doing so, save $4,456 in interest charges. And while this may not seem like a big deal to some, for the individual who is looking at this debt as a big deal, it represents light at the end of the tunnel, and is the kind of information that can be empowering and hopeful for someone who really wants to take back control of their finances.