Staying current on payments or reducing the use of credit cards has been difficult for many Americans contending with stagnant wages, unemployment or underemployment, as the Center for Responsible Lending noted in its latest study Wednesday.
The consumer advocacy group, using research from Demos, said about 40 percent of low- and middle-income households rely on credit cards to pay for basic living expenses, such as rent, groceries and utilities. Medical bills have also become a leading contributor to credit card debt in the aftermath of the recession.
Americans, nevertheless, have managed to pay down high credit card balances coming out of the recession, a trend the consumer lending group partly attributes to credit card reforms.
Industry practices, such as high penalty rates and unclear fee structures, were banned or curbed by the Credit Card Accountability Responsibility and Disclosure Act of 2009. Price transparency, according to the report, is allowing consumers to better manage their debt.
In recent years, predatory lending practices saddled many Americans, especially minorities, with credit cards or mortgages with exorbitant rates and fees that increased the chances of default. When those consumers defaulted, their credit scores tumbled as the reporting agencies perceived them as credit risks.
The CFPB raised the concern that credit scores have the potential to reinforce the effects of discrimination, but stopped short of offering solutions.
The consumer agency has the authority to supervise a wide array of financial actors who impact consumer credit, including credit card companies and credit reporting agencies. The latest report is a follow up to a study released in October on widespread discrepancies in credit reports.