Legislation To Protect Consumers From Crappy Credit Card Practices Moves Forward
The Credit Cardholders' Bill of Rights is back in the news, and with Congress considering the legislation, we offer a refresher on what's in this bill and why it's important.
Last time we checked in, the Fed had passed some good regulations that stopped some of the worst abuses by credit card companies. Unfortunately, those regulations won't go into effect until July 2010 and they don't go as far as what Congress and the President want. The Credit Cardholders' Bill of Rights, sponsored by Representative Carolyn Maloney (D-NY) cleared the House by a wide, bipartisan margin, but didn't get out of the Senate before it adjourned. On the other side, Senator Chris Dodd's (D-Conn.) Credit CARD Act contains much of the same language as the House bill but also adds important protections for consumers under 21, who are often targeted by credit card companies marketing on campuses.
With the renewed vigor of a new Congress and administration, both houses of Congress are working on getting legislation passed and sent to President Obama. Here's what the legislation will do:
- Banks can only increase a credit card's APR if the rate is a promo rate that expired, if the rate is based on an index (for instance, prime plus 3%) and the index increases, or if the customer is late or doesn't make a payment on that account. This effectively bans universal default, where a bank will increase a card's APR because you were late on paying a different card.
- Bans double cycle billing
- Banks can't charge fees or consider you in default if your entire balance consists solely of interest that accumulated on the charges.
- Banks cannot notify credit agencies that you have a new credit account until you use or activate that account
- Banks cannot charge fees for paying by phone or online.
The House bill will take effect one year after the bill becomes law, or no later than July 2010, when the Fed regulations take effect. One exception to this is an amendment that was added will require banks to notify customers 45 days before raising their interest rates; this measure will take effect 90 days after the bill is signed.
President Obama has indicated that he'd like to include more protections, such as requiring banks to apply credit card payments to balances with the highest APR, rather than split proportionally. Obama is also proposing requiring companies to get consumers' permission before adding overdraft protection, rather than just giving consumers the chance to opt out, like under the House bill. Additional protections include requiring that payments be due at the same time every month, and that billing statements disclose how long it will take to pay off the balance when making only the minimum payment.
Lots of good stuff out there. Politically tricky as it may be, we'd love to see merchant agreement violations like minimum purchase and and fees for using credit cards addressed somehow, but that will have to wait till another day.
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"Credit CARD Act contains much of the same language as the House bill but also adds important protections for consumers under 21, who are often targeted by credit card companies marketing on campuses."
Great news. Hopefully soon to follow will be protections for consumers under and at the age of 18 who are targeted by college campuses overselling what their degrees are worth.
One exception to this is an amendment that was added will require banks to notify customers 45 days before raising their interest rates; this measure will take effect 90 days after the bill is signed.
But this is only credit cards, right? Not other debt?
(The company that now owns and manages my student loans does not notify me at all when the interest rate changes. When they jacked it 4% for no reason last year, I had no notice whatsoever until they called me 21 days after my regular auto-payment had cleared to inform me that I was delinquent... because after the interest rate change I didn't know about, it was $50 short.)
And how about eliminating the heinous "We can change terms at any time for any reason" type language?
How about requiring all terms being disclosed at the time of application, rather than after receipt of the card?
Imagine if you applied for a mortgage, received and closed on the mortgage and a month later get a "Welcome" packet in the mail disclosing the actual terms and conditions - which are subject to change at any time for any reason.
I would love to see something that makes it so banks can't change the interest rate on an existing balance only on future purchases.
If they get credit card rules finally dealt with, abusive banking practices should be next, after that go after Fair Issac. The idea that one private company can make or break your life and you have no ability to dispute or even see their file on you is just wrong.
I've long been a fiscal conservative and long subscribed to the concept of laissez-faire, market-driven regulation. But as a religious follower of Milton Friedman, my faith has been shaken lately. I'm not just talking about the financial sector's complicity in the very deep recession we're in; my recent lack of faith goes much deeper.
The credit card companies are using FICO as leverage to get what they want and keep you from shopping around. I'm not one of those tin-foiled hat guys who's going to scream "conspiracy!" but how do you explain so many companies participating in anti-consumer activities - like raising rates and reducing limits on their best, most credit-worthy customers? If you are a conscientious consumer who appreciates the value that a good credit score gives you, you're going to take whatever the credit card company dishes out, because if you cancel their card and apply for a new one, your credit score gets screwed. And they know this. So they can behave as badly as they want with no consequences.
Which is why it somewhat pains me to support this sort of anti-business legislation. I simply don't see any other way to put reasonable boundaries around these out-of-control fees and behaviors. Even if the CC companies come out of Obama's meeting this week promising to clean up their act, they will (and have) simply change their mind later. It's time to reign in the out-of-control credit card companies.
They had me until the bullet point about not charging interest on accrued interest. I think it's the company's right to charge interest on money that YOU THE CREDIT CARD HOLDER owe - whether it is principle or interest. To me, that is the government overstepping its bounds.
Credit is a privilege, not a right, much like owning a home. If you borrowed money and couldn't afford to pay the lender in full and they begin to penalize you based on the terms you agreed to, that's your bad, not theirs.
@humphrmi: Don't worry, you're not alone. I'm just three years removed from being the president of my law school's Federalist Society chapter, and I can't believe some of the stuff that came out of my mouth in all my contracts and UCC classes.
@humphrmi: "but how do you explain so many companies participating in anti-consumer activities - like raising rates and reducing limits on their best, most credit-worthy customers?"
Well, there's another explanation: the free market rewards douchebaggery. We've seen it with banks and CC companies, as well as cable and cell phone companies, retail companies, etc.
Yay, now they'll just have an excuse to jack my rate sooner rather than later....
I used to have an AT&T credit card that later got bought out by Citi. I was steadily paying more than the minimum and gradually knocking down the debt, even though still occasionally using it (mostly gas purchases).
One day I start getting collections calls from them, at 8 AM (waking up those of us that are on a late cycle). They say they didn't get a payment. I said I sent it in, and on time. After a few times calling back to customer service, I finally got someone who ran a lookup of payments based on the AMOUNT I paid. She actually found MY payment had been miscredited to another account that differed from mine by 2 digits (I think she said they were transposed). She made the corrections on both accounts.
When calling back to their collections department, and when this was pointed out to them, they acknowledged that they could see the error and the correction. But they refused to stop the collections calls. A supervisor then told me that the machine that does the collections dialing still had my number in it and she was not going to remove it, and that it would still call me daily at 8AM for the next 2 weeks (which it did).
I got even. Since I had already weened myself off using credit, I simply stopped paying. I have no moral qualms about that because of what they did. I consider the balance to be only partial payback. That was years ago and it's past SOL now, and nearly off my credit report (as if I care ... I don't need credit or a bank teller job). I'm actually glad that, in my little way, I got to screw a bad bank. I just wish it had been a much larger balance.
Back to the topic. A LOT more needs to be done than just this law to stop these banks from screwing people. While Joe the unlicensed plumber might be whining about redistribution of wealth, I think we need laws like this and more to prevent the redistribution of the wealth created by working people, by the big banks and other evil corporations*.
We definitely also need to be sure there is a law against those mandatory binding arbitration clauses (in all contracts, not just credit cards). Wasn't there another law working through to do this?
(* not all corporations are evil)
Can I get a 'HELL YEAH!'
I think I can.
I wish they'd also include something banning mandatory binding arbitration. Still, whatever passes will offer some improvement over the status quo.
@humphrmi: I think you make a good, reasoned set of points, but how exactly is this legislation "anti-business?"
Unless anything outside of "letting businesses do whatever the hell they please" is "anti-business," this legislation still leaves the credit card profit-making system solidly intact.
@humphrmi: One problem with the way these credit card companies operate is that you're screwed if you do and screwed if you don't. If you keep a running balance, then you're a credit risk, ripe for them to take advantage of. And they don't care if it will push you into default since that just proves they were right (despite losing money when you file chapter 7). If you keep the card paid off with a zero balance, then they don't make any money from you and want to shut you off.
Free markets should not be free for businesses to abuse consumers. My counter to a "free market" is for a "fair market". I'm all for capitalism, but in a reasonably regulated market where abuses are not allowed, and teeth can chomp down hard when the abuses do happen (including failures to correct errors). Business should make a reasonable profit on the value of product or service they provide, not a killing at the consumer's expense. What's going on now in the credit card and other financial business sectors is "redistribution of wealth", but from people to corporations.
We also need laws to protect stockholders from these very same executives mismanaging their companies into the ground. And I mean jail terms for certain executives, too.
@SkokieGuy: I like how you think- what is the point of laying down new protections for consumers when they can just change the wording?
For Example: You forget a payment on another credit card. Since they can't use universal default, they've designed a new system to charge you. They cancel your current account, and offer you one where you must pay yearly fees that has a minimum 24.99% APR. Just skirting the new laws.
It's still abuse, but remember- They can change the terms at any time for any reason.
@Ichiro51: Informed opinion seems to suggest students largely get their money's worth: [articles.moneycentral.msn.com]
@veg-o-matic: You got it right in your second paragraph. To someone who really believes "market-driven regulation" is not an oxymoron, any restriction on businesses is anti-business.
@Zclyh3:
WEEEEEEEEEHAAAAAAAAAAAAAAA!
Me too!
I love, love LOVE this bill. And I think, the banks' kicking and screaming aside, that they will be pleasantly surprised to find that this will make it EASIER for their customers to make their payments. All that evil stuff they were doing was making it harder on people, which of course meant that they didn't get their money.
I might actually get a card after it passes.
@quagmire0: I do agree with you on this. If it's money owed, it's pooled money. There's no cause for the distinction between the debt being principal or interest.
However, I do agree with the idea that if the CC company wants to raise the rates, it should only be allowed to do so on amounts you charge on or after the effective date of the new rate. This means the amounts under the old rate, and the amounts under the new rate, need to be kept separate, and their interest accumulated separately.
That does raise the complication of how to handle payments. Do they get applied to the earlier balance first, or can they be applied to the latter balance at the higher rate.
When rates or contract terms are changed, it should be treated as brand new account. It should be handled as if the old account was closed to new charges and paid off under the old terms. My compromise solution is this: the CC company can dictate where the minimum payment amount is applied, and the consumer can dictate where the portion above the minimum amount goes.
@Zclyh3: I didn't vote for him, but I really applaud him for this move. It seems like he's doing a darn good job!
I agree with the law, but I have to be the fly in the ointment.
These laws will increase the cost of credit to consumers by lowering the revenues of the card issuers.
Just an FYI.
@floraposte: Informed opinion or one opinion? I had to look no further than to realize that that article was a joke when it made the blanket statement that "There's a reason why people borrow tons of money to attend law and medical schools. The return for a professional degree is huge." Digging a little deeper than what might seem to be intuitive would be pretty helpful.
I only came in here to express my love for that adorable baby.
Smiling tots > lolcats
;-)
@Zclyh3: See, I voted for him because he promised (many times) that his first act as president would be to immediately end combat missions and start a troop withdrawl from Iraq.
But this is just as good....truly the PEOPLE's PRESIDENT.
@humphrmi: Establishing rules of conduct and bills of consumer rights is very pro business.
It makes sure companies who have good practices succeed and makes bad companies accountable when the marketplace can't do its job.
Face it... credit is like an oligopoly. When the status quo becomes anti-consumer, they can get away with ANYTHING.
Companies will have to behave under the new rules. Competition and market forces with work well under the new limits.
@Canino: Something tells me you didn't vote for him at all :P
Trolling aside, this is a good thing for consumers. It's nice to see laws being passed that help the public instead of the private sector for a change.
The credit card companies will do as much as they can get away with. It's great that Obama/Congress is introducing regulatory legislature, but I've heard nothing about how they plan on enforcing it.
One of those be careful what you wish for things. New York used to have an absolute usury cap of 25%. Didn't matter if you were a corporation or whatever, the cap was 25%. During the Carter years, interest rates actually approached that level so the banks simply stopped lending in New York. All lending. No mortgages, no car loans, no nothing. Pretty soon the usury cap was lifted.
Not saying that's what will happen here but the more restrictions that are placed on lenders, the tighter the underwriting will be. A FICO score of 820 will get a person a $300 credit limit.
And no, I don't represent or work for a lender. All I'm suggesting is that there has to be some balance and some personal responsibility by borrowers.
If these laws were in effect my BOA card would not have it's APR doubled recently. Well, BOA probably did that because they're preparing for this legislation already. I wish it could be retroactive so that I could get my 7.99% APR back but I highly doubt they will ever give that back to me. Even though I've never ever been late and always pay more than the minimum :(
@Barrister76: If the interest rate was 25% (or anywhere near it) I'd do my damnedest not to borrow anything... to the point of renting a shack somewhere and eating ramen noodles.
Also, if the strictures proposed were really that bad, companies might do as you say and refuse to extend credit to lots of people. What's more realistic is that they'll continue to offer credit to creditworthy customers (though perhaps in more reasonable amounts... between 2 cards I could charge about 90% of my annual income. I'm not sure anyone needs to charge that percentage of their income on credit cards.) They'll STOP offering high-limit cards to people with poor credit, which I think is a good thing. People tend not to learn if things are too easy.
Any details on the riders they have tacked on to this?
They have so much money in the bank and credit industries, not only will they buy the politicians, not only will this law not pass like it is but the industries will have other bills handed to Congress with instructions to pass them. Of course, these laws will be written to help industry not the consumer.
Does anyone really believe that Obama and/or Dodd can change anything? NO! The banks lobbyists will see that the banks can still screw the customer at anytime. The banks are worse than Tony Soprano and charge more too.
It's very apparent that the banks are only interested in their top executives getting bonuses, taxpayer money, and special treatment by the politicians who were elected to protect the American people. WILL SOMEONE PLEASE DO SOMETHING?
The banks and their bankers are whores that, even in this ecomony, refuse to hire American workers to deal with fellow Americans choosing insted to outsource their call centers to the third world nation of India.
Personally, when I talk to anyone in India, I loudly let them know they are stealing American jobs, are part of the American decline, and need to be fired.
This is a job American would and should do. What does an Indian in India have in common with the common consumer in the USA? NOTHING!
I can't help but relate this to Ear Sinclair's(sp?) "The Jungle" when people bring up free enterprise and a very pro-business attitude.
Throughout the course of human history we have seen the damages that businesses, empires and religion has done to people. This is no different.
Credit card companies, banks and other consumer lending agencies have gone too far. Enough is enough. The consumer should not every have to deal with stuff like this again. We need to make sure our voices are heard to our legislators if they water this bill down to favor the businesses.
I too believe in the "fair market" principle. I am 100% for a well regulated business and financial world. I want things to be able to change on a whim if and when they change their practices to be more predatory.
However I do not want an over-regulated market. I plan on being my own small business owner in about 5-7 years. And I know that there are many regulations I will have to deal with already...I hope there isn't more because that will reaaaaaaly deter me.
Will we see government credit cards?
"Obama. Don't leave home without it."
"Life takes Obama."
@Zclyh3: he should go after the insurance companies next. as for being the people's president, he needs to stop appointing RIAA and MPAA lackeys to positions
@GearheadGeek: Just as a little historical aside, in 1981 the prime rate topped out at 20.5%. 30 year mortgages were in the 17-18% range and you could get 16% on a CD. If you needed to borrow money for anything, you didn't have a lot of choice. Oh, and inflation was running in the 15% range as well.
This sounds like a good idea but you can't legislate against stupidity. People are STILL going to be clueless about their finances and run up huge debt. And one thing I've found is that no matter what laws the government passes, the industries that are affected won't bend over and take it up the ass. They'll find some way of passing on lost revenue to some other entity. Banks who were black-mailed into giving out home loans to people who could never have afforded them by fascist groups like ACORN didn't let themselves get bukkaked with stupid so the sold off the poison pills to somebody else in the food chain (who sold it to someone else and so on and so on [and somewhere along the line people decided to get insurance on that garbage guaranteed by the government] until finally it landed at the feet of the government whose only recourse was to dry-docks the taxpayers).
Same thing will happen here. You'll see fewer people getting single-digit interest rates. Merchants will get hosed for higher transaction fees who will then have to pass it on to their customers.
@My father was a service droid!!!: But at least it will be a level increase in cost to everyone, instead of the random potluck of who gets screwed big time this month.
Do keep in mind that with fewer consumers getting screwed over, fewer will be going bankrupt, and more will eventually use credit cards. So that will help the banks get more business.
@blazenbu: Please patronize small town local banks. If you live in a big city, please move to a small town where there are small town local banks. They don't outsource offshore. They don't gouge consumers. And they are doing OK even in this economy by simply being careful.
@RogueWarrior: "Banks who were black-mailed into giving out home loans to people who could never have afforded them by fascist groups like ACORN " That is a load of crap. Greed of lenders and their broker/agents made those loans. Telling a bank that not lending/raising rates to a qualified consumer due to the location of the property was racism is not forcing anyone to make loans to unqualified people. You are lying to yourself and attempting to spread those lies to other people.
to Quagmired who said that companies should be allowed to charge interest on money that people owe. Yes this is true; however, people who have lost their livelihood throught lay-offs or loss of pensions due to fiscal madness sometimes have no choice but to live off of credit in order to survive or to keep from losing their home. Many of these folks were fiscally responsible. These folks are entitled to some protections and relief while attempting to pick up the pieces of their lives. I applaud the government for stepping in and being what they should be and that is a government for the people.
@Zclyh3:
have you even read the reactions of the credit card companies?
I'm all about not having high APR but what happened to free market capitalism? You don't like the card? go some place else. Dont' like the rules close your account.
What Obama should change is Bankruptcy laws and credit scores rules. If you close an account it should NEVER hurt your credit score it should improve it. (so long as you were in good standing). That's the real change I want.
This is a show, in the end it'll either not change a thing or change things too fast and a backlash of credit card companies will drop people and raise rates right before the bill.
@humphrmi: option 3 change the rules of FICO? I mean why tell businesses how they should run their company. But you can change the way FICO scores work. If you say people can cancel their cards without penalty then companies will have to go by that or risk loosing customers to a card company that will take them.
just saying.
@Ichiro51: Doesn't that blanket statement almost violate the rule that you shouldn't buy things on credit because of expectation of future income?
Yes, I know student loans are a better debt to have than credit card debt, but many college students at that age don't realize that and take on way too much of the credit card debt instead of the student loans.
I LOVE BARACK OBAMA. That's why I voted for him....truly the PEOPLE's PRESIDENT.