The House and Senate recently passed a bill that will change the way credit card companies are allowed to conduct business. This bill was passed on the heels of the second worst financial crisis to hit the United States in the last century. These new provisions will help to protect cardholders from practices currently being used by credit card companies that lawmakers feel to be predatory or unfair.
One of the major changes will be to make credit card statements easier to read and understand. Obama was recently quoted as saying, “You shouldn’t need a magnifying glass or a law degree to read the fine print that sometimes doesn’t even appear to be written in English.” More often than not, included in the fine print of these statements are details outlining the credit card companies’ rights to increase interest rates, or charge consumers penalties based on late payments, etc. The manner in which this information is presented makes it hard to find and comprehend.
Additionally, credit card companies will no longer be able to raise interest rates on existing balances until the card holder is 60 days delinquent. If a cardholder does have their interest rate raised due to delinquency, they have the ability to have it set back to its original level after 6 months of timely payments.
In one of the more alarming practices that will no longer be used, credit card companies will not be able to penelize a cardholder if their payment is considered late due to the credit card companies’ inability to process the payment on time. Meaning, in the past, if you got your payment to the company in time, but they were slow to process, you would be hit with a late fee. Along the same lines, cardholders will no longer be charged a late fee if their due date for payment falls on a weekend or holiday, and the credit card company doesn’t receive the payment until the day after. From now on, all due dates will be on non-holiday weekdays.
Lastly, no one under the age of 21 will be able to sign up for a credit card without having their legal guardian sign on as the primary cardholder.
As to be expected, the banking industry has big problems with the bill. Revenue created from late-fees and interest rate fluctuations comprise 10% of the credit card industry’s revenue. As a result, credit card companies say they will be forced to offer less credit at higher rates. This will cut the amount of credit and spending power available to the public which becomes a concern when the American economy depends so heavily on its citizens spending habits to stay healthy. Also, cuts in credit could hurt small businesses as they rely on credit to stay operational when cash flows are low. It is very possible that the decrease in the amount of credit available could hurt the recovery of the economy.
Credit card companies have also threatened to cut reward programs due to expected decreases in revenue.
What do you think? Are these kinds of reforms long overdue? Have we been taken advantage of for too long, and have these credit card companies gotten rich at our expense long enough? Is it smart to decrease the amount of available credit to small businesses and struggling families especially during the current downturn? Will these provisions help delay our eventual economic recovery? At age 18, you can vote and die for your country, shouldn’t you be able to get some credit to pay for that sweet trick-bike you saw on ebay late Tuesday night when you couldn’t sleep after eating that double fudge sundae, without having to call your mom and ask her to be a cosigner?
That’s for you to decide. Actually, not really, in all likelihood Obama is going to pass the bill before Memorial day.