New Orleans  I have to confess I have often been skeptical of programs claiming to protect consumers that trumpet transparency as a major feature of the reform.  I can show the scars still from negotiations with predatory lenders and tax preparation companies, who would easily agree to full disclosure of their effective interest rates and offer to put them on posters or computer screens even when they stated clearly that the interest might be 300 or 400% annually. 

            All of which had me reading closely a column featuring an analysis of the impact of the Credit Card Accountability Responsibility and Disclosure Act or Card Act (yes, they are sometimes so cute in Congress!) written by Floyd Norris in his “High and Low Finance” column in the Times looking at a study by economist Neale Mahoney from the University of Chicago and others of the impact of the Act on bank and card company practices.   To most of their surprise, this effort at regulation seems to have actually worked, saved consumers what will likely end up being $20 billion in bank rip-offs, and hasn’t led to banks larding up fees to compensate, although there’s a likely reason for that we’ll get into later.

            The success seems to have turned on two sets of very important things.

            On the consumers’ side there are several very clear things that it turns out we concentrate on, which helps us focus and sort out the various bank offers:  most importantly the stated interest rate, then whether there is an annual fee, and any sort of awards for card usage, which some folks like.

            On the banks’ side the law and its regulations plugged a lot of the holes in the dike that banks had been using to siphon off billions.   Consumers were given 21 days, not 14 to pay.  There was a 45 day notice on rate changes and they could not be applied to purchases already made.  Only one late charge or overpayment charge could be assessed.  There were also limits on the size of the fee and on other charges like paying by phone or internet.   You get it; they actually took their jobs seriously and reined in the banks.

            The study of course found that the banks were making the most from the most predatory products and desperate customers, who were their subprime borrowers.  In fact Mahoney says that in the aftermath of the Great Recession, “…when banks were hemorrhaging money on subprime loans, subprime credit cards were a major source of profits.” 

            Good intentions are not protecting us, but it turns out that even without highway robbery fees they still make crazy money, so the banks are restraining themselves, and probably more importantly given the consumer razor like focus on the actual interest rates on the cards, the banks are forced to keep their hands out of our pockets because the card business is so competitive. 

            The fierce competition in the general credit card market backed up by the Card Act is probably the only thing as well that makes disclosure actually work in this case.   On credit cards banks are forced to compete for our business, rather than in more predatory situations where our own desperation makes us sheep for the slaughter.