Tuesday, May 19, 2009

Credit Card Reform Bill-If People Lived Within Their Means, Then Congress Wouldn’t Have to Pass Reform In the First Place

The New York Times reports:

The Senate voted overwhelmingly on Tuesday to put new restrictions on the credit card industry, passing a bill whose backers say will make card-issuers spell out their terms in fewer words, using plain English, and treat customers more fairly.

The 90-5 vote, following a 357-to-70 vote in the House on April 30, made it likely that President Obama will have a measure on his desk before the Memorial Day recess. The differences between the House and Senate versions will have to be worked out, but given the political atmosphere it seems likely that the House-Senate negotiations will move quickly.

“This bill cleans up the fine print so consumers can’t get blind-sided by their credit card companies,” Senator Harry Reid of Nevada, the Democratic majority leader, said recently in urging passage. “This bill will not only level the playing field and keep the rules consistent from beginning to end, and it can also save families thousands of dollars a year.”

Among other things, the Senate measure would prohibit companies from raising interest rates on existing balances unless a card holder was 60 days behind, and then it would require the rate to be restored to its previous level if payments were on time for six months. Consumers would have to be notified of rate increases 45 days in advance. And companies could not charge a late fee if they were late processing a payment.

Statements would have to be mailed 21 days before a payment was due. It would be harder for companies to issue cards to people under age 21. Rates could not be increased within the first year, and promotional rates would be in force for at least six months.

While this is all fine and good, I believe the more meaningful measure was the cap on interest rates that they voted down last week. Yes, there are more rules for them to follow, but there’s nothing stopping the card companies from charging 50% interest rates. Also, there was a report this morning that said the card companies, in an effort to make up for lost revenue due to the rules passed today, were going to start going after those people who pay off their balances every month. Those folks with “sterling credit” should expect annual fees and interest charges to apply immediately after a purchase. Nice.

I have a very simple solution for the individual to keep these loan sharks at bay. Don’t use your cards. If you have a balance, pay it off. They can’t make money if people didn’t owe them anything. Believe me, I understand first hand and know that it’s easier said than done. I have taken the time to figure how much extra money I would have if I didn’t have to pay a credit card bill and it’s a disappointing amount. If we all made the necessary sacrifices and lived within our means, then the Government wouldn’t have to create legislation to make these companies to play fair. The companies would have to play fair because it would make good business sense to do so. Instead, they are fully aware that they have a situation in which people need their product to survive. As a result, they do whatever they they want because they can. Meanwhile, the poor consumer needs their product to survive as they have put themselves in a position where most of their money goes to pay off previous credit card debt. It’s a vicious cycle.

Listen, I’m not ignorant of the realities of this economy and I know that a lot of people have no choice but to use their cards. That said, we made the credit card companies powerful by running up enormous debt. Now the banks and their lobbies run congress. That’s why the interest cap was voted down, as was cramdown. If we want to get control of our Government again, then we need to weaken the forces that work against us. In this case, we the people need to be responsible consumers, take care of our finances, and live within our means.

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