Nearly three years after the implementation of a landmark credit card reform bill, the Consumer Financial Protection Bureau faces a monumental challenge: determining whether the law helped or hurt consumers.

Even before its passage in 2009, there was strong disagreement regarding the likely impact of the reform law, which went beyond merely requiring card issuers to improve disclosures by also placing significant restrictions on pricing. Consumer advocates argued the law would make the card market fairer and more transparent, while critics in the industry said it would make credit more expensive and harder to obtain.

The CFPB is now in the unenviable position of deciding who was right, including taking comments on the law's impact and issuing a public report on October. To do that, it must wade through a morass of conflicting claims and try to untangle the effects of the financial crisis from the impact of the Credit Card Accountability Responsibility and Disclosure Act, known as the CARD Act.

"It's very hard to, with great confidence, estimate the causal impact of the CARD Act," acknowledged Ryan Bubb, a New York University law professor and the co-author of one of the most extensive studies of the law to date.

The stakes could not be higher for card-issuing banks. If the agency finds that the CARD Act resulted in higher prices and less credit availability, it would undermine the policy argument in favor of price restrictions.

On the other hand, if the CFPB finds that consumers have benefited, on balance, from the law's new rules, that would likely buoy consumer advocates to push for even tighter restrictions on card pricing.

Amy Traub, a senior policy analyst at Demos, a left-leaning think tank, argues that CARD Act's rules do not go far enough. "The most important thing that we'd like to see is a usury limit," she said.

There is broad agreement on one point about the CARD Act. The law was successful at substantially reducing the specific fees that it targeted.

In the first 10 months of 2010, card issuers' revenue from over-limit fees fell from around $250 million to just $8 million, according a report from the Office of the Comptroller of the Currency. The decline in late fees was smaller but still significant — the average late fee fell from around $33 to $23, according to the same report.

"The act had a number of benefits for consumers," acknowledged Ken Clayton, executive vice president of congressional affairs and chief counsel at the American Bankers Association, "but at the same time it is not without negative consequences."

The law's critics argue the following: by placing limits on or virtually eliminating certain fees, the CARD Act lessened the ability of card issuers to price the risk of default by individual customers.

In order to compensate, they say, issuers had three choices. They could price for risk at the aggregate level, spreading the costs associated with higher-risk customers to a larger pool of borrowers; deny credit to higher-risk borrowers; or implement some combination of the first two options.

The act "has led to higher costs to consumers and, as importantly, reduced credit for consumers," Clayton said.

He pointed to data from the Federal Reserve Board showing that revolving consumer credit outstanding fell from $1.01 trillion in 2008 to $858 billion in November 2012.

But much of that 15% drop happened before the CARD Act took effect, and, as Clayton acknowledged, it's hard to sort out the impact of the new law from the effects of the recession.

After the housing bubble burst, U.S. consumers had strong reasons to become less indebted. Likewise, the state of the economy gave card-issuing banks plenty of incentive to reduce the risk in their card portfolios.

Meanwhile, the prediction that the 2009 law would result in a higher cost of credit is the subject of a recent report by Timothy Kolk, a card industry consultant.

Kolk compared credit card interest rates with other consumer interest rates, and he found that credit card rates fell by a much smaller margin over the last several years. Furthermore, he concluded that the CARD Act's consumer protections are a significant reason that card rates are higher than would otherwise be expected.

Kolk estimated that the higher interest rates are costing consumers $28 billion per year, or $420 annually for each household that carries a credit card balance.

"By any reasonable estimate, any offsetting financial benefit driven by reduced fee assessments does not come close to offsetting this increased interest costs," he wrote.

The study has encountered stiff criticism. Reuters finance blogger Felix Salmon wrote that the rise in the difference between the credit card interest rate and a key benchmark rate occurred in the two years before the CARD Act became law, and that the gap actually began to narrow shortly after President Obama signed the measure in May 2009.

Another critic of the study, Georgetown law professor Adam Levitin, wrote in an email that no one knows yet the extent to which increases in interest revenue have offset decreases in fee revenue. "Until and unless we can, it's just not fair to say anything about the impact of the CARD Act," he wrote.

But the studies put forth so far by consumer advocates also provide an incomplete picture of the 2009 law's impact.

Last year Demos conducted a survey of low-income and middle-income households that carry credit card debt, and while it found a decline in the prevalence of late fees and over-limit fees, it did not examine the overall cost of credit. The progressive think tank also found that 39% of households surveyed had experienced tighter credit over the previous three years, but it did not attribute any of that tightening to the CARD Act.

In a May 2011 study, the Pew Charitable Trusts found that interest rates on credit cards remained largely unchanged from a year earlier, while certain fees fell. "We concluded that as a result of the act, credit cards are safer and more transparent for consumers," said Nick Bourke of Pew.

But the Pew study did not account for changes in the composition of banks' credit card portfolios. "If you took a lot of risk out of your portfolio, yet the average rate remains the same, the average rates have in effect gone up," said Oliver Ireland, a partner at the law firm Morrison Foerster who often represents financial institutions.

One of the most comprehensive studies of the CARD Act's impact was conducted by NYU Law School's Bubb and one of his colleagues, Oren Bar-Gill.

Their article makes a key point that is lost in much of the discussion of the CARD Act: under economic theory, price restrictions on certain fees should result in the substitution of higher prices elsewhere when there is strong competition among issuers.

But when issuers have market power, perhaps because there are costs associated with switching credit cards, consumers should see some savings from price restrictions, because issuers don't want to risk losing profitable customers by raising other prices so high that borrowers opt to shop for another card.

The NYU article found that card issuers did not increase other charges to fully compensate for the fee revenue they lost as a result of the CARD Act, suggesting that issuers do in fact have market power.

"We find that the rules have substantially reduced the back-end fees directly regulated by the CARD Act, including late fees and over-the-limit fees," the authors wrote. "However, unregulated contract terms, such as annual fees and purchase interest rates, have changed little."

In an interview, NYU Law School's Bubb acknowledged that the study has limitations and called the findings tentative. And others dispute the notion that the credit card market lacks strong competition. It will be up to the CFPB to determine who's correct.

"The bureau is evaluating how the cost and availability of credit has changed since the CARD Act," the agency stated in a Dec. 19 press release, "and will consider the extent to which the up-front interest rate and all-in cost of credit have changed when controlled for risk."

Another way to potentially measure the CARD Act's impact is by analyzing issuers' return on equity before and after the law's passage. If the law had its intended effect, such returns should have fallen.

In 2011, Moshe Orenbuch, a card industry analyst at Credit Suisse, estimated that the industry's return on equity would fall to 16%-18%, down from a historical average of 20%-25%.

But in an interview, Orenbuch said that questions remain about the CARD Act's impact on the industry's long-term profitability, since issuers have been in a contraction mode over the last several years.

"The jury's out a little bit as to what those returns will be," he said.

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