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  • Credit Card Regs No Credit to Congress

    Who said the 111th Congress has never accomplished anything? Today, major parts of the Credit Card Act of 2009 take effect. Enacted last May with great fanfare, the legislation restricts rate increases on existing balances, requires promotional rates to last at least six months, limits over-limit fees, mandates 45 days notice before certain terms of service can be changed, and imposes a host of other requirements intended to help credit card users.

    So should consumers be celebrating? Maybe not quite yet. As it turns out, the legislation ran smack dab into the Law of Unintended Consequences, likely leaving consumers worse — not better — off.

    As a first matter, credit card issuers have been raising rates in anticipation of the new limits. In fact, according to one report, annual percentage rates (APR) for new cards averaged 13.46% last week, compared to 11.51% a year ago. At the same time, the once nearly extinct annual fee is making a comeback.

    And there are new fees as well: Fifth Third Bancorp, for instance, has announced it will charge a $19 inactivity fee for cards not used for a year. JPMorgan Chase is raising balance transfer fees from 3% to 5%, and minimum payments from 3% of balances to 5%. Discover is adding a 2% fee for transactions made outside the United States.

    So much for Congress’ claim that it would save consumers money. Even worse, the new, supposedly pro-consumer law is making credit harder to get in the first place. The amound of credit made available, in fact, nosedived 7% from March to September of last year. Some — especially low-income and younger consumers — may be left without credit entirely.

    As unintended as these consequences may have been, they certainly were not unforeseeable. Congress — and the Administration — were warned of such un-consumer friendly results, but chose to ignore them, opting instead to pose as the consumer’s protector as they enacted the legislation, hoping that those consumers wouldn’t connect the dots once the downside hit.

    And, rather than scramble to undo the damage, Congress may soon double down on its mistake. Under financial services reform legislation being considered in the Senate, a new consumer financial services agency would be created, with broad-ranging powers to regulate not just credit cards, but the whole spectrum of consumer financial services.

    The legislation, however, neglects to repeal the law of unintended consequences. Despite all the efforts to protect them, consumers should not feel very safe.

    Posted in Economics [slideshow_deploy]

    13 Responses to Credit Card Regs No Credit to Congress

    1. Brad, Chicago says:

      Credit card companies have used some dirty pool to make money, but they are still businesses with the right and the imperative to make it. If you try to limit their ability to do so, it should be no surprise when they find a different way. They can play this game of sidestepping the regulations, until they no longer have a reason to stay in business. At that point, it's consumers that lose as the whole idea of credit evaporates.

    2. Alice Martin says:

      I just got a $60 annual fee for a Citibank card and canceled due to non use by GE. Thanks Barrack…guess that was the change you've been talking about.

    3. Ozzy6900, CT says:

      Let's not forget how Senator Dodd tipped off the CC Companies by running his mouth back in October 2009. Since then, the CC Companies have been jacking up rates and taking down limits at will. The morons in Washington just don't get it! For every fine, restriction, rule and what ever that they impose on companies and banks, WE are the one who pays for it!

    4. stirling, Pennsylvan says:

      Great example of what happens when government "thinks" that they can "Fix" the free market system. If consumers realized (like our government) that debt can actually hurt, then they wouldn't put themselves in the situations with the credit card companies in the first place. Consumers should have some protection, but it shouldn't come at the cost of destroying the ability of banks to provide (and yes, make a profit which investors want) a service needed to run our economy.

    5. Bill, Florida says:

      Is limiting credit availability to low-income and younger consumers such a bad thing? Irresponisble lending/borrowing is largely to blame for the bind in which we currently find ourselves.

    6. Chris, Springfield, says:

      I can't decide whether I like the reform or not. Folks with good credit had been subsidizing the credit card companies lax underwriting for too long. On the other hand, I'm now going to be paying certain convenience charges necessary for the credit card companies to maintain their profits. Where I'm paying one way or the other, maybe less credit getting to the uncreditworthy is better for the American economy. (or more likely, will be a boon to subprime lenders and loan sharks)

    7. Rick74 says:

      When my credit card company increased its annual percentage rate, I called and cancelled that credit card.

      When I asked to have one credit card's creidt limit reduced and a second card's credit limit raised, I was told they would not be able to accomodate me. I then cancelled both cards and all other cards I had with that company.

      If you have flexibility in that you're not already overextended, you have the ability to (1) negotiate with the credit card companies, and/or (2) negotiate with your feet as you drop accounts and reestablish them elsewhere.

      Look at credit unions. Their rates are competitive. Their services are comparable. Their methods are not as intrusive.

      Credit card companies are in it for the money. But they should be, as profit-based entities.

      We as consumers need to be in it for the money as well.

    8. ACE SEZ BISHOP, CA. says:

      American Express and I have been on friendly terms for over 40 yrs (all charges are paid off monthly)–never abused that obligation and have been treated like a good customer by Amex

      The zenith of convenience was when they allowed me to stick my card in the gas pump– fill up and drive away.

      There have never been any snafu's in the record keeping/billing in all this time–I appreciate the convenience of my American Express card and can't find any reason to badmouth the company

      Accepting the terms of a credit card contract is an adult responsibility that apparently some adults have a problem with —– Fair is fair?

      As for Congress (or the Senate) messing with us in a sneaky way–they are a majority of law school graduates and lack of integrity is their stock in trade!

    9. Drew Page, IL says:

      Credit card companies have issued cards to every single person they can find. They don't care about your ability to repay. In fact, they hope you have trouble repaying so they can charge you up to 29.99% interest. The banks behind these credit card companies make it easy on the debtors by allowing minimum monthly payments to stretchout the time over which they can collect their usurious interest rates.

      The banks claim that they must charge such high interest rates due to the number of cardholdres who default and don't pay. However, they do nothing to reduce the number of those who can't pay. They do not engage in underwriting the financial ability of potential cardholders. They don't ask if you have a job, how long you have had it, what your other debts are, etc.

      If the government were truly concerned about the public, they would pass usuery laws limiting the amount of interest that banks and charge card companies could assess. this limit could be tied to a multiple of the current Prime Interest Rate, perhaps 2, 3 or even 4 times whatever the Prime Rate was. But the government won't do this. They say this would be unfair to the poor, who need credit more than the rest of us. So that leaves the rest us to pay the exhorbitant interest charges imposed by the banks and credit card companies, so the poor can get credit regardless of their ability to pay. The government did the same thing through the Community Reinvestment Act, pushing the banks to make loans to people who very often were not in a position to make the mortgage payments. After all, Fannie and Freddie were their to buy up those mortgages from the issuing banks. That turned out well, didn't it?

      Messrs. Carter and Clinton were only trying to get more Americans realize their dreams of home ownership. How noble. Don't you just love it when politicians refer to their "dreams" or the "dreams" of the American public. Well, I guess dreams are ok for the dreamers. Problem is, all too often, those of us living within our means wind up paying for all the dreams of the dreamers. You know, I often dream about winning the lottery prize of tens of millions of dollars. Why should the government make sure I realize my dream?

    10. Dean, Lititz says:

      I must ba a profit. As soon as I heard congress was messing with credit cards I new two things: 1. I was going to pay more (no more 7.9% cards). 2. In the middle of a credit crises they would pass a bill that exasperates "the crises".

    11. Herb, Bryan, Texas says:

      I'm not sure all of these consequences are unintended or, to be honest, unwanted.

      I have long disagreed with other conservatives I know about the need to restrict the changing of rates on existing balances. I cannot make a rational choice to use credit or not if the rate floats. I have supported such a regulation, which I believe is necessary for working contracts in the credit arena, knowing it would lead to higher interest rates and less credit issues as crafting more precise risk profiles would be difficult for the credit card issuers.

      Looking at the degree to which our current economic crisis resides in too easy credit across the spectrum I don't find the regulations a social bad but a social good. Easy credit which was issued to people with a history of poor credit was a broad problem. Issuing it in a form where people with poor credit skills (as demonstrated by their history) are getting credit whose terms are complex and hard to handle for those who have good credit use skills only multiplies the problem.

      Given the mechanism for enforcing these credit problems is the state, via the courts, it is not unreasonable for the state to limit enforcible credit to forms whose issuance does not credit a broad risk for society as a whole. This touches on all the basis for what limited action government should take in the economy: transparency of contracts, contract enforcement, currency stability, and preservation of private property.

      Perhaps the Democratic Congress that passed this bill did not foresee these consequences and thus knowingly support them. The economic ignorance they routinely demonstrate leads that supposition credence. That said, knowing these consequences I still think the bill is a correct expression (for the most part) of government regulation in the economy and the consequences, although "bad" in some respects, are in general a positive outcome.

    12. Spiritof76, NH says:

      When are we going to have hearing by people on the US Congress and shut off its unlimited credit binge?

      The whole thing is a joke. I don't know how many times the American people keep falling in the same trap over and over.

      I for one would like to assemble a trial in front of the Capitol and hold hearings on the frauds of the federal government and issue a injunction from borrowing any more. The next debt limit increase request must be denied with all those that support such legislation prosecuted for reckless endangerment of the Republic.

    13. Jill, California says:

      Add Wells Fargo to the list of credit card companies willfully hurting customers in response to changes being made by Congress.

      I paid off all my balances and stopped using my credit cards for anything but online purchases. Wells Fargo has been retaliating against me ever since. Wells Fargo puts fraud alerts on a high percentage of my routine purchases, demanding that I phone the fraud department for every one. But I refuse to phone in and deal with the aggravating menu-driven phone system. Instead, I send emails or letters about the "suspect" transactions. However, Wells Fargo refuses to accept any form of written confirmation from me.

      The problems keep escalating. If it's not a fraud alert, Wells Fargo declines these routine transactions and blocks my card. Recently, Wells Fargo closed one of my cards without warning and for no reason.

      This is nothing short of revenge, because I refuse to carry a balance and pay interest charges. I've complained to the Comptroller of the Currency, but that agency is useless. I've complained to law enforcement. I get no help. I'm now taking my story to the media. Maybe if I embarrass Wells Fargo enough, something will change.

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