The Credit Card Accountability Responsibility and Disclosure Act of 2009 was supposed to provide consumers with a new level of protections against what President Barack Obama once described as the credit-card industry's predatory and unfair tactics.
"Contracts are drafted not to inform, but to confuse," the president said at a May 2009 signing ceremony in the White House Rose Garden.
"Mysterious fees appear on statements. Payment deadlines shift. Terms change. Interest rates rise. And suddenly, a credit card becomes less of a lifeline and more of an anchor."
The law sharply restricted the ability of credit card companies to increase interest rates for existing customers, charge account maintenance fees and assess penalties.
Card issuers are required to notify cardholders at least 45 days before any change in interest rate. And penalty fees and charges are required to be "reasonable and proportional."
But an examination conducted by The Pew Charitable Trusts into lending practices among the nation's 12 largest banks and 12 largest credit unions - nearly 450 consumer credit cards in all - found disturbing trends emerging in the industry within a year of the law's passage.
"The elimination of most of the 'unfair' or 'deceptive' practices of the credit industry since we last surveyed the marketplace marks a major milestone in the move to make credit cards safer, transparent and more fair for consumers," said Shelley A. Hearne, managing director of the Pew Health Group.
"Most of the news is good, but we are seeing the rise of new harmful behavior."
The Pew Charitable Trusts report, "Two Steps Forward: After the Credit CARD Act, Cards Are Safer and More Transparent - But Challenges Remain," was published in July 2010.
"Credit cards are now safer and more transparent for consumers than at any time in recent years," the report concluded. "Still, higher transaction surcharges and the use of undisclosed penalty rates are undermining the general trend toward increased transparency."
Among the problems it uncovered:
1. Interest rates continued to rise for many consumers.
Credit card issuers typically advertise a range of interest rates for cardholders with different credit scores, Pew noted.
Among bank-issued credit cards, the advertised purchase rates increased by more than 30 percent between December 2008, when Pew began collecting data, and March 2010.
In addition, the highest advertised purchase rates grew by 17 percent between July 2009 and March 2010 alone, compared to 13 percent in the December 2008 to July 2009 period.
Among credit union cards, the highest advertised rates rose 17 percent between July 2009, when Pew first collected credit union data, and March 2010.
2. Penalty interest rate practices remain widespread.
Card issuers are permitted to increase interest rates on existing balances as a penalty for late payments.
Pew found such penalty rates to be two to three times higher than base advertised rates - potentially adding penalties of 20 percentage points or more.
"... Such penalties can significantly increase the size of the minimum payment due, making it difficult or impossible for a struggling cardholder to resume on-time payment," Pew reported.
At least 94 percent of bank cards and 46 percent of credit union cards examined by Pew included penalty rate terms. Where disclosed, the median penalty rate rose by one percentage point from July 2009, to 29.99 percent.
"Unfortunately," Pew reported, "the Federal Reserve recently refused to set rules to ensure that penalty interest rate increases are subject to its 'reasonable and proportional' standards, indicating its belief that Congress did not intend such regulations to exist."
3. Some issuers stopped including the size of penalty interest rates.
Some card issuers "failed to state what cardholder actions would trigger penalty rate increases or how cardholders could return to non-penalty rates," Pew reported.
"Under longstanding banking regulations, cardholders are entitled to know the key pricing terms of their accounts, including when penalty rates may apply and how high they may be," Pew reported. "When issuers withhold key penalty pricing information, cardholders become vulnerable and uninformed. It is a worrisome trend that runs counter to the Credit CARD Act's goalsof transparency and simplicity."
4. Cash advance rates grew faster than purchase rates.
Since July 2009, median advertised cash advance rates rose significantly among all issuers, increasing between 14 and 20 percent for banks and between 12 and 16 percent for credit unions, depending on a cardholder's credit profile, Pew reported.
Pew found that the median advertised cash advance rate was a stunning 24.24 percent on bank-issued cards.
5. Surcharge fees for cash advances rose sharply.
Bank cash advance and balance transfer fees rose by 33 percent between July 2009 and March 2010, from 3 percent to 4 percent. Credit union cash advance fees rose by 25 percent, from 2 to 2.5 percent.
"Our research shows that the increase in cash advance fees comes at a time when cardholders are drastically cutting back on their use of credit card cash advances," Pew reported.
"In 2009, cardholders cut back on cash advances by more than 40 percent compared to 2008," the report found. "Bank issuers appeared to be recouping some of this lost fee income by increasing cash advance fees while simultaneously raising cash advance annual percentage rates."