Purpose Of The Credit CARD Act Of 2009

The purpose of the Credit CARD Act of 2009 was to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan. The CARD Act required The Secretary of Education and the Director of the Office of Financial Education of the Department of the Treasury to coordinate with the President’s Advisory Council on Financial Literacy to develop a strategic plan to improve, expand and support financial and economic literacy education (United States Government Printing Office, 2009). On July 1, 2011, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), this responsibility was passed to the Consumer Financial Protection Bureau (CFPB).

The President’s Advisory Council

The availability of credit cards facilitates consumption smoothing and allows a rational consumer to use credit to maximize lifetime utility (Soman & Cheema, 2002). However, Soman and Cheema (2002) stated that this reallocation of income requires a fair degree of cognitive complexity on behalf of the consumer, which is an assumption that has been shown to be unrealistic. Lusardi (2009) noted that most individuals deal frequently with credit cards and other forms of borrowing, however, only a minority of individuals possess basic financial knowledge about debt. Navaro-Martinez et al. (2011) stated that financial institutions consistently provide credit card interest cost information in terms of a compound annual percentage rate; conversely, research indicates that consumers have a difficult time understanding compound interest. Financial knowledge is likely to influence the repayment decisions of consumers because knowledge will impact a person’s ability to comprehend the interest terms of a loan agreement (Navaro-Martinez, et al., 2011). The CARD Act of 2009 attempts to protect consumers in this area by requiring credit card issuers to utilize contract terms in a manner that cardholders can easily

Now, the idea of saving is to increase the volume of a purchase until a discount is achieved. The concept of saving to initiate a purchase or paying cash has been replaced with a mantra of you can have anything your heart desires today, as long as it is within your credit limit. This behavior has led to overspending. Consumers who pay by credit card spend more in identical purchasing situations when compared to consumers who pay by cash or checks (Soman & Cheema, 2002). Wilcox, Block and & Eisenstein (2011) also found that once the decision to purchase has been made, the utilization of credit cards leads to additional spending when compared to other forms of spending, such as the use of cash and checks. Consumers have a tendency to remember purchases made by cash or checks while purchases made by the use of a credit card are easily forgotten. Further financial education and awareness in this area may be a way to address the current financial crisis. As technology continues to evolve, consumers will operate in a society where the utilization of cash and checks becomes