Credit card “bill of rights” puts few restraints on banks

[Hannah Bell]

Last week the US Congress passed and President Obama signed into law the so-called Credit Card Holders’ Bill of Rights, legislation that has been touted... as a major reform of unfair practices by credit card issuers. ...pushed through Congress amid growing outrage... over the increasingly arbitrary and usurious methods being used by credit card issuers to extract ever more money from a shrinking pool of card holders...

Over the past decades, credit card defaults have paralleled the unemployment rate fairly closely. This tends to undercut the myth propagated by the media that many people (read: the working class) “irresponsibly” overspend through the use of credit cards getting themselves into unmanageable levels of debt. In fact, it appears that difficulties arise primarily when people lose their jobs....

Credit card companies are behaving in accordance with patterns established in recessions of the past. The companies squeeze cardholders in order to maintain their profits during the economic downturn. The expectation is that the increased rate of return will carry them until better times return, despite the fact that this policy will drive a certain percentage of their customers into extreme economic difficulty and raise the rate of payment defaults...

This strategy is based on the assumption that the rebound will occur before the balance tips the other way—when the losses from the ever increasing numbers of defaults overwhelm the company’s ability to squeeze greater income from those credit card holders who have not yet succumbed to economic ruination, which is brought on, in part, by the very policies carried out by the companies.

Clearly, this model leads to disaster if the economic crisis continues for longer than expected. However logical it might appear for the banks to reduce the financial stress on borrowers so that they can survive over the long term and continue making payments, the incessant need to maximize profits in the short term in order to maintain investor support makes this latter strategy impossible for capitalists. Thus, the “logic of the market” leads to irrational and destructive results...

The business and financial elites are caught in a contradiction. On the one hand, retailers are desperate to get people spending... On the other hand, the banks... are driven to jettison those card holders they consider risky while squeezing the remainder for all the revenue they can get...

With rising unemployment and other stresses on the economic condition of increasing numbers of middle and working class people, this contradiction will only get deeper.

http://www.wsws.org/articles/2009/may2009/cred-m28.shtml

[Sherman A1]

1. From what I heard of the Bill, it does nothing for cardholders

except force the banks to disclose what they are going to do a bit earlier. The whole thing in my opinion was window dressing and nothing more.

[Hannah Bell]

2. Apparently so....

"The bill’s main provisions include a prohibition on raising interest rates on existing balances unless payments are at least 60 days overdue and a requirement that credit card issuers give 45 days notice of increases in interest rates or other changes in an existing “agreement.” The bottom line is that interest rates and fees can still be raised, only a bit more slowly."

[dipsydoodle]

3. Most likely outcome

is that the credit card companies will impose annual charges for use of their cards.

[regnaD kciN]

4. Not quite...

The big difference is in the first part of your post.

-- Currently, banks can raise interest rates retroactively (i.e. on the debt people have already run up, and which they probably can't afford to repay) basically at will. Under the new plan, rate increases outside of defaults can only be on future purchases, not on debt already owed.

-- Currently, an increase to the "default" rate (generally around 30%) for one's entire balance is usually imposed if a cardholder is ever late on any monthly payment, even only once, even if it arrives a day after the deadline, even if it is made online on the due-date, but after an arbitrary cut-off time which could be, say, noon Eastern Time. Pay it online from the Pacific Time Zone at 9:15 A.M.? Sorry, that's 12:15 P.M. Eastern, you're in default, and your interest rate is now 30%. Under the new law, such a "default rate" can only be imposed if you're 60 days overdue. (They can still charge you late fees before that, but they can't raise your interest rate.)

-- Also, if you do fall 60 days behind and get your rate jacked up, the bank has to reduce it to your original rate if you catch up on your arrears and then make on-time payments for six months. Currently, once the bank has raised you to the default rate, they are under no obligation to ever lower it, and you will be stuck paying 30% (or whatever) for as long as you own that card.

Make no mistake, the new bill does make things better in a number of ways. My problem with it is twofold: 1) it does nothing for cardholders who have already had their rates jacked up (it's not retroactive), and 2) since it doesn't take effect for another nine months, you can bet that the banks will make sure to jack the rates of anyone with less-than-stellar credit before then, even if they've not done so by now.

[Hannah Bell]

5. thanks for the information.

[Vinnie From Indy]

7. You are correct!

My credit card rate shot from just under 9% to 29.99% last month.

[Statistical]

8. There are two substantial changes.

If CC companies raise your rates:
1) the rate is for NEW purchases it doesn't change existing purchases.
2) payments need to be applied to higher interest rate first.

Right now say you transfer some debt at 8.99% fixed and are "doing the right thing" paying it down.
CC company jacks up your rate to 24.0%. Well this applies to your existing $10,000 balance too.

Suddenly even your larger payment isn't really paying it down. You are just paying more interest.

[sendero]

6. Without some kind of ..

... indexed interest rate cap, this bill is useless.

If you need any more proof that the banks OWN congress, this bill IS that proof.

[solstice]

9. It's nothing but window dressing.Neither Congress nor Obama cares how bad they gouge us.

[Triana]

10. Congress is too timid to put any restraints on banks

or insurance companies

or pharmaceutical companies

or oil, coal, and gas companies

or any companies

they hide under their beds with their little white flags out. When the corprats tell them they're satisfied they come out, lips pursed and kissing corprat a$$.

The rest of us?

S C R E W E D

They're owned. And WE didn't buy them.