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The measure received bipartisan support despite the banking industry's opposition. Credit-card companies say the legislation will force them to raise rates and tighten credit.
That second sentence is important. Now, this quote:
Quote:
Originally Posted by Wall Street Journal
The legislation stops retroactive rate increases, requires companies to post credit-card agreements online, ends the practice of shifting payment dates, and requires statements to be mailed 21 days before a payment is due.
Considering what the law actually does, why is it that the credit card companies are "forced" to raise rates? There's nothing in there that costs them any more money than what they've been doing - in fact, it saves them money to post agreements online.
Now, the other article, speaking with bulletpoints about the law.
Over-the-limit fees: Issuers cannot charge over-the-limit fees on credit cards unless the consumer has authorized going over the limit. Once the law takes effect, the consumer has the right to choose whether or not to go over the limit when making a purchase.
Interest-rate payments: Any payment above the minimum applies first to the balance with the highest rate. This used to be the opposite, leaving some consumers in repayment purgatory for years and years.
Disclosure: Card companies, under the new regulations, must spell out more clearly how long it will take cardholders to repay debt.
...
The Center for Responsible Lending took a look at what banks have done since the Fed proposed the first wave of regulation at the end of 2008 to what banks are doing now. They found, as have many of our readers, that credit limits are being slashed, fees for cash advances and foreign transactions are up, among others. These practices will be banned when the Fed regulations and the Card Act go into effect.
Under the new rules, card issuers must give customers a 45-day notice about any changes, including a slash in their credit limit.
That's the good stuff. It isn't much. In fact I could think of 5 other things that are clearly needed. But here's what they still want:
Quote:
Originally Posted by Wall Street Journal
A cap on interest rates. A cap as low as 15% was discussed, but Ms. Banks says that 36% is more likely. While that sounds high, she says a mathematical formula was used to determine that as the cap.
An earlier implementation date. Earlier versions of credit-card reform would have forced implementation within three months rather than the current nine months.
Stronger student-lending provisions. The new law’s student-lending provisions, which deal with how younger consumers can access credit cards, still leave some authority to the Federal Reserve Board to interpret the law, says Travis Plunkett, legislative director of the Consumer Federation of America.
Interest rate cap is only good if you mandate that you can't issue cards to subprime cardholders at the cap automatically. A better option would have been to mandate a straight line rate that applies to all qualified cardholders regardless of their actual credit score. Use the credit limit being lower for the subprime population, but the rate should be one rate across the board.
Earlier implementation would be great, but also chaotic. The banks would recoil and likely rescind credit offers for the 9 months anyway while they get their systems updated - not good for those that could benefit from credit, like small business startups.
Student lending should be a mandate of education and disclosure. Require clear and easy-to-read disclosures to any student applying for credit to let them know what they're getting to. Require that they explain what the interest rate is and how it calculates the finance charge; explain the monthly payment and how if your balance is a set amount, your minimum monthly may not be sufficient, etc. Then it's on the students to actually read the documentation.
What I'd like to see:
Repeal the clause in every agreement that gives the card companies carte blanche to do whatever they want without reprecussion or cause. No cutting lines, no raising rates, no canceling cards, none of that without a valid reason for doing so specific to that customer (i.e. a history of missed or insufficient payments, fraud, etc). If a company is getting sued for their practices they should not be able to shut down the cards and start up a new card line; that should also be prohibited. It's double dipping. They shouldn't be able to say "oh, the law is hurting us so we will hurt the customer".
Require that the banks calculate the minimum monthly payment in accordance with any and all monthly recurrent fees. What's happening these days is that, if your credit limit is above a certain amount and your interest rate is at a certain level, and say you take advantage of payment protection...Your monthly fees might actually exceed the minimum monthly payment that's calculated. Merrick Bank in particular is notorious for this, and they do it so that your balance will continue to increase until you're near or over the limit. The next payment then will not be enough, you go over, they charge an overlimit fee (more on that later). It's theft. I know the recommendation is to always overpay minimum. What I'm saying is, the card companies should be required to actually CALCULATE PROPERLY the minimum so that people aren't forced to overpay minimum in order to get the balance down. It should be an option, not the rule.
Multiple overlimit fees should be prohibited. If a customer is overlimit, makes a payment that brings them under and then goes over again due to the fees I mentioned above, no fee should be assesed if they already did one, because the card company's calculated minimum fee was insufficient, which according to the agreement is definitely a problem. If a cardholder is overlimit two consecutive months but is making minimum monthly payments as directed by the card company, no additional fee assessments, only the first when they went over.
All customers should receive the option for automatic or manual credit line increases, selectable online without speaking to a representative. Why does this matter? Because there are a lot of consumers who are attempting to control costs. Raising credit limits automatically could be problematic for the customer. Allowing online selections of this similar to other opt-outs gives the consumer control without spending the time and money licking a stamp or sitting on hold on the phone. It also puts the onus on the consumer to manage their credit card accounts.
Banks should be prohibited from "auto denial" decisions due to bankruptcy and forced to consider credit score and history if the bankruptcy is discharged. CitiBank is notorious for this. Why is this important? A person might have a bankruptcy discharged 6 years ago with a perfect payment history since, and should not be automatically (keyword) punished for that long-time-ago event if everything else is positive. The only reason banks do that is so they'll have an excuse not to extend credit, but bankruptcy filings are at an all-time high right now, and soon it will get to the point where nobody gets approved for anything.
Finally, and IMO most important, credit card companies should assume part of the risk for reported fraudulent activity. Meaning, if a customer reports that their credit card was stolen, all credit card companies should require the customer to submit a police report and complete a fraud statement, and assuming both were done, the bank should then automatically - without the customer having to beg for it - negate any charges that occur on the card after the date of the report. Right now there are banks that do not do this.
Considering what the law actually does, why is it that the credit card companies are "forced" to raise rates?
When you limit the ability of the bank to increase interest rates for poor payers, your then limiting their ability for the banks to seperate poor payers from good payers and thereby everyone has to pay a higher rate..
The law that SHOULD have been passed is simply..
Make it illegal for credit card companies to change a rate, after a charge..
i.e. I charge $1,000 today, they change the rate tomorrow on what I charged today, not fair, should be illegal, but the law went way over the top to the point that it will be very harmful to individuals trying to establish credit. Poor, people starting out etc..
They can raise rates if the card holder is not paying the bill. There's nothing to indicate that they can't. The problem is that they can't do it retroactively, but so what? They can still change it if there is a history of bad payments.
Again, they have the ability to separate the good vs. bad payers. They also have the ability to separate prime vs. subprime. Limit how much credit you extend, not the fees you charge on said credit. If I'm a prime sub, charge me 10% with a credit limit of $10,000. If I'm a subprime sub, charge me 10% with an initial credit limit of $500. You've just limited your risk by limiting how much credit you extend, but you don't need to charge higher interest rates just because of the risk. That's the bonafide definition of predatory lending. If you're going to charge 30%, charge it to ALL, not just those who can't afford to pay it.
When you limit the ability of the bank to increase interest rates for poor payers, your then limiting their ability for the banks to seperate poor payers from good payers and thereby everyone has to pay a higher rate..
The law that SHOULD have been passed is simply..
Make it illegal for credit card companies to change a rate, after a charge..
i.e. I charge $1,000 today, they change the rate tomorrow on what I charged today, not fair, should be illegal, but the law went way over the top to the point that it will be very harmful to individuals trying to establish credit. Poor, people starting out etc..
What happened to the deregulation mantra of the Bush years?
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