Credit Card Bill Passage Sparks Debate on Impact
As the Cardholders' Bill of Rights moves to the Senate, the debate rages on what the bill, if enacted, will mean for American card consumers.
While debate continues over the Bush Administration’s proposed $700 million bailout package, the U.S. House took time this week to pass HR 5244, known as “The Credit Card Holders Bill of Rights,” by a 312 to 112 vote, despite the objection of bankers and other opponents who say the legislation will lead to higher fees and charges for credit cards.
The legislation eliminates retroactive interest rate hikes, late fees that push cardholders over their credit limits, and double-cycle billing, among other reforms, according to Rep. Carolyn Maloney (D-N.Y.), who sponsored the bill along with Rep. Barney Frank (D-Mass.).
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Maloney said in a statement, “This historic legislation will help working families who face their own credit crunch as a result of what the Federal Reserve itself calls ‘unfair,’ ‘deceptive,’ and ‘anti-competitive’ credit card practices. It’s now abundantly clear that in the area of consumer credit, the same lack of reasonable regulations, transparency and prudent lending has led to a level of pain on Main Street that matches or exceeds the pain on Wall Street.”
House opponents of the bill were tied up in the debate over the proposed bank rescue package and were unavailable for comment.
But the American Bankers Association, the trade association that represents the majority of the nation’s banks, said the legislation, “while well-intentioned, will increase the cost of credit for consumers and small businesses across the country, result in less access to credit for consumers and businesses alike, and may further roil the securities markets – all at a time when our economy can least afford it.”
Bankers contend that credit card issuers will have to increased fees and interest rates in order to cover the higher risk of the proposed new rules. Additionally, fewer consumers would qualify for cards and those that do qualify would see lower credit limits.
The risk to card issuers would be higher under the bill, bankers have argued, because the legislation would no longer permit card issuers to reprice interest rates when a cardholder’s financial situation changes. For example, a cardholder who started getting later with payments – often an indicator of eventual default – could no longer be forced to start paying higher rates until it was time to renew the card.
ABA President Edward Yingling added, “Legislation resulting in higher prices to consumers makes little sense at any time, let alone when global markets face the degree of turmoil that confronts them today. By limiting their ability to manage risk in making loans, this bill will force lenders to increase prices for everyone to compensate for that added risk. That’s unfair. Sometimes things that appear attractive on the surface often come with too high a price tag. Increasing prices for consumers, reducing low-cost credit alternatives for small businesses, and causing more ripples in the securitization market make little sense.”
The bill now goes before the Senate where its future in the current Congress is uncertain, given the focus on the banking bailout package in advance of a Congressional recess for elections.
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Comments
Comment from Patrick Lunsford on September 25, 2008 at 2:08PM EST
Anonymous at 1:58PM:
Not to make light of your son's problem, but doesn't a credit card kind of come with a built-in payment plan?
Comment from Douglas O'Dwyer on September 25, 2008 at 2:12PM EST
There are egregious cases, to be sure, but totally outlawing repricing of credit card accounts is not the answer. A line of credit agreement has never been a lender's promise to offer thousands of dollars at the same price for eternity. If that's what the consumer wants/needs, then they need a LOAN, not a CREDIT CARD. Imagine insuring an automobile if you couldn't reprice the policy based on traffic tickets, change in commute or residence?
Comment from Anonymous on September 25, 2008 at 2:33PM EST
Credit is good only if used wisely. People owning credit cards need to use their common sense and be selective as to what they put on the card. It's not free money and for every account that doesn't get paid off because of misuse and inability to pay just adds more to the bill for the rest of us using discretion.
Comment from Anonymous on September 25, 2008 at 3:14PM EST
The real answer lies with supply and demand. Credit Card companies will provide lower interests and get rid of fees if no one accepts their product in the first place. If you understand that "Interest is to be made, not paid", then you probably don't carry a balance on a credit card or carry a credit card at all.
Comment from R. Temple on September 25, 2008 at 3:16PM EST
What ever happened to personal accountability? I have a college age child as well but if she charged over her limit or didn't pay on time, is that the fault of the credit card company? You say the $2,000 was charged off......who got robbed? Douglas (above)is right about repricing.
Comment from Evan W. on September 25, 2008 at 4:17PM EST
Here's a true life story...I have 2 cards from the same bank. One card is about 5/8 to the max and the other has a 0 balance. The bank routinely gives me balance transfer offers for the card with the balance and I haven't received one for the other.
Is it the bank's hope that I will accept the balance transfer offer that I may go over my limit so they can charge me 28% instead of the 15% on my current balance and 7% on the transferred balance? Also, before the new law all payments would go to the balance carrying the lesser rate while the balance with the higher rate would not get paid untill the other balance is paid off, with the new law the higher balance gets paid first...KUDOS! Not that I have accepted any of the offers they have sent me on this card.
Comment from Douglas O'Dwyer on September 25, 2008 at 5:10PM EST
Evan, good example point on the payments going to the lower interest rate balance. The legislation will keep this from happening, and this is an easy "surprise" for even the moderately attentive customer. But I go back to my original point-- no one should expect a line of credit to have a fixed price for eternity. If you want a fixed price, then the lender is going to asked for a fixed termination date-- or they will offset the risk with fees. To the parent of the student with the charged off card-- there was no requirement for your child to pay $2000 to borrow $300. Simply making a $15 payment every month would have prevented all the fees. Did the student make $300 worth of payments? Over what period of time? Could that reasonably be expected to cover the bank's borrowing costs over that period of time? Banks don't print money, they borrow it, too. Living beyond what you can afford (and I've done it!) does not justify anger at those who provided the money-- unless they should have expected that a student enroute to a 4 year degree could not be entrusted to borrow an amount of money that they could reasonably be forecast to earn in their 1st week on the job after graduation. My sympathies are with those who use cards to solve medical emergencies-- truly life and death situations. Those are the folks who who are not careless or irresponsible, but genuinely have no other solution and are using the resources available, despite the risks.
Comment from Anonymous on September 25, 2008 at 5:35PM EST
Would it be that easy if we could simply tell everyone that they need more "personal responsibility" or these things would not happen.
First of all, many people get into debt because of medical bills, death of spouse, divorce (statistics show that the majority of people who file bankruptcy are these kinds of debtors) or not understanding the complex credit terms that are offered to them (and frequently changed in arcane ways). I have met people with a fifth grade eduction (they were taken out of school to work on the family farm) who do not read and do not understand what interest is. The credit cards companies still offer them a tremendous amount of credit, and set "minimum payments" so low to maximize interest income. This is predatory and damaging to our economy. We need reasonable credit that is underwritten responsibly.
Second, even if it was true that all debtors get into money problems because of irresponsibility, poor lending habits affects all of us--witness the proposed $700 billion bailout that we all have to pay for. This doesn't even account for the inflated housing prices (caused by flipping, the extension of credit to everyone with a pulse and the mortgage interest deduction) that have left housing prices expensive for even upper-middle class people.
We need real reform of bankruptcy, credit cards and mortgage lending. Crying "personal responsibility" and hoping that consumers become educated will leave us an even more bankrupt country.
I don't feel sorry for credit card companies that make billions in profit each year...
Comment from Mary Ann on September 25, 2008 at 6:24PM EST
Okay, so what if you have made the mistake of getting into a load of credit card debt and you are trying to pay it off? I stopped using my credit cards and am doing the "right" thing by trying to pay off my debt. But when I ask the credit cards for help, like lowering my 17.99% interest rate on my consolidation loan, they will not help. To me that shows me that they don't give a damn about whether everyone is having financial hardships or not. I'm working 3 jobs to pay the bills and the house. They sincerely can't possibly need to charge me 17.99% when I have always paid on time and they are borrowing at 2%. Give me a break! Why is it that they will only help me if I become delinquent on my payments???? The credit system is backwards. I own up to make my mistakes and am paying them on time consistently, making more than the minimums. Shouldn't people like us get some kind of help with a lower interest rate? To me, it seems that the banks want to keep us in credit card debt prison for the rest of our lives. I certainly could put more of my money into our economy if the credit card companies will lower my interest rates and help me become debt free quicker.
Comment from amfltd on September 25, 2008 at 7:57PM EST
Though I would prefer to see businesses exercise good judgment and police themselves it appears obvious that this was never going to happen in the current environment we have in the banking industry. I believe the threat of increased cost to "good borrowers" is simply a ruse to gain sympathy or promote fear. For once in a great while, bravo to Congress.
Comment from john on September 25, 2008 at 10:16PM EST
I have a credit card with a 650 limit. I closed the account. I was making minimum payments on the 650 after the account was closed. The payments were from my checking account. I made sure they were made on time. Last month I paid electronically as per the date showing on the screen. They hit me with a 49 dollar late fee for being what they claimed was 1 day late. I got steamed but this month I made my regular minimum payment, now my fees are up to 79 dollars and they are calling me twice a day telling me I am in receivership, what ever that means. You can talk all you want about personal responsibility. It does not mean for a second that credit card companies are ethical. They lire cheat and steal. They teach our young to lie cheat and steal. The 700 billion dollar bail out is an example of what happens to financial liars cheaters and stealers. They get bailed out.
Comment from Brett Maxwell on September 26, 2008 at 7:49AM EST
I agree that legislation needs to be passed to prevent predatory lenders like HSBC from offering a 'decent' 14% interest rate when they open an account then 6-12 months down the road, increasing that int rate to 29.99% solely because you have higher balances on other cards. If the payment history with a particular lender is perfect and you don't go overlimit or pay late, then you should not be penalized by a paranoid lenders idea of increasing risk down the road. If you go overlimit with them or pay them late, there should be penalties and perhaps a higher interest rate for a 6-9 month period but $39 in late and overlimit fees and 29.99% int rate for the rest of the life of the account is clearly not the solution either. Once this happens, the business relationship always goes south and turns into a battle between consumer and lender. Legislation and regulation needs to be put in place and for people who are irresponsible or don't pay attention to paying their bills timely or consistently go over their limit need a dose of reality, but not such a huge dose, the problem snowballs and the consumer can never recover. I'd bet most of those accounts end up included in bankruptcies or settled for less than the total balance so the lender rarely sees all those fees/penalties/interest anyway so why bully the cusotmer. If a lender actually had a program to work with it's higher risk customers, including educating them, and giving them the chance to get 'good terms' back again, the crisis in the credit card industry would begin to sharply decline. Sounds like a win-win to me. I'd vote for this legislation any day!
Comment from KEN SULLIVAN on September 26, 2008 at 12:41PM EST
The credit card companies prey on credit challenged people. They send you all these offers of approved credit like the one above from the college grad with the capitol one card owing 2000.00 on a 300.00 credit limit. I have a household card with a 1500.00 limit, I have paid 100.00 per month on this balance for the last five years and have never paid more than three-four days late and with the late fees and all I still owe them 1500.00 on a card I havent used in over 5 years. I say about time regulations where put in place, go a step further and restrict the offers they make to credit challeged people.
Comment from Mark on September 26, 2008 at 2:05PM EST
If someone has never been late on a credit card has their rates go up for being late on a utility bill or something like that is unacceptable. What does one have to do with the other? Isn't it reverse thinking? If you raise someone's rates, wouldn't it be more likely that the person would THEN be more likely to miss payments, or get behind? It's a cause/effect reaction. The banking industries argument just doesn't hold water. They're freaking out because they know that they won't be able to fleece people anymore. If you look at the House vote only one Democrat voted against the bill, and she is from South Dakota. Not irony folks. The two states with the largest credit card companies are South Dakota, and Delaware. Also, the 2004 campaign for Bush had over 60% of their contributions come from the banking industry led by MBNA. This led to the bank ruptcy reform which for voted on almost exclusively along party lines and signed by our genious president. Why do the republicans continue to let these large companies do this to Americans? I'm all for capitalism, but the credit card companies can still makes oodles of money without screwing us!