johnnymk

http://www.latimes.com/business/la-f...,4101216.story

Reporting from Washington -- On the eve of a congressional vote on credit card reforms, Treasury Secretary Timothy F. Geithner urged lawmakers Wednesday to "change the rules of the game."

He said that "deceptively complex" credit card rules "hurt responsible borrowers and threaten to turn lives upside down." President Obama has criticized companies for jacking up interest rates and levying unexpected fees on customers.

The House is scheduled to vote today on a bill to impose tighter restrictions on an industry that collects about $15 billion in fees a year.

The House bill, supported by Obama, would ban industry practices such as raising interest rates on existing balances retroactively, assessing extra fees for card users who go over their authorized limits and marketing the cards to people younger than 18.

Companies also would have to notify customers 45 days prior to any rate increase and could no longer engage in "double billing," the practice whereby consumers may be charged interest and fees on balances that have been paid on time.


In a statement defending the industry, Edward L. Yingling, president of the American Bankers Assn., said the legislation should "strike the right balance" between protecting consumers and assuring easy availability of credit.

"Well-intentioned legislation such as the 'Credit Cardholders' Bill of Rights' could have the unintended consequences of limiting credit for responsible consumers and even making it more expensive," he said.

Geithner, who spoke after meeting with consumer groups, civil rights advocates and Rep. Carolyn B. Maloney (D-N.Y.), a chief sponsor of the bill, said increased regulation of credit card practices was part of the Obama administration's overall plan for creating a more transparent and balanced financial system.

With the current financial crisis partly fueled by irresponsible borrowing and lending, Geithner said, the failure "to constrain bad lending practices by banks and finance companies" has left working Americans with too much debt, he said, and contributed to the overall financial crisis.

"People have lost confidence in the quality and judgment of the leaders of many American financial institutions, and they need to work very hard to earn back that confidence," Geithner said.

"Secretary Geithner definitely spoke about trying to add fairness to the system. And I think that's all the average consumer is asking for," said Ruth Susswein, deputy director of Consumer Action, who attended the meeting.

"We're talking about things that can make a real difference in people's lives. But their voices have not been heard," she said. "Now, finally, those who can make a difference are standing up and saying it's time to right this balance."

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zippyjuan

Fees are where the credit cards companies make the majority of their money- not from the interest borrowers pay.
Frontline had an excellent program on this in 2004. http://www.pbs.org/wgbh/pages/frontline/shows/credit/

Google Video link: http://video.google.com/videoplay?do...34093760901799

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VTGreg

There are some good aspects to this legislation like restricting those under 18 from getting a card and eliminating "double billing" (although it isn't really double billing). However, I fear that many of the new rules in this bill will further restrict credit. This isn't necessarily a bad thing, but will hurt responsible borrowers. Here is a novel idea, if you don't want to be subject to interest rate hikes then don't carry a balance on your credit card.

The American public has become far too comfortable living beyond their means and then crying foul when it all comes crashing down.

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Jeffbx

Credit card companies USED to be able to exist on interest payments. But now they rely on ridiculous fees - why? Yes! To pay down the debt of people who shouldn't have qualified for a card in the first place!

If these companies were more careful about WHO they gave a card to, they wouldn't be trying to cover the bad debt by piling fees on other customers.

IMHO, if you have bad credit, you should have to buy a pre-paid card or one that must be backed by a deposit equal to the card's limit.

johnnymk

http://www.cbsnews.com/stories/2009/...n5026927.shtml

Proponents of the bill think it will be a boon for consumers.

"Well, first of all, this is a great day for consumers," Sen. Chris Dodd, D-Conn., told Early Show co-anchor Harry Smith. "It couldn't get much rougher on consumers, when you can raise rates from 5 percent to 24 percent and take credit limits from $32,000 down to $4,000 overnight for being three days late for the first time in 40 years, as happened to a Connecticut couple."

But that leaves credit card companies with a potential gaping hole in their revenues. Penalty fees accounted for up to 70 percent of credit card companies' revenues as recently as 2005, Moneywatch.com editor-at-large Jill Schlesinger told CBS' The Early Show Wednesday.

That could mean increases in other fees that would largely affect customers who regularly make prompt payments - called deadbeats by the credit card industry because they provide lenders with no additional revenue, Schlesinger said.

"How are you going to replace $12 billion? I'll snap up and give you an annual fee. Interest will get charged the day you start that transaction, not a few weeks later. And maybe those rewards programs get cut back. If you're a good payer, the so-called deadbeat, you might get hurt in this legislation," Schlesinger told Early Show co-anchor Maggie Rodriguez

Even with the legislation, there will be a nine-month window before the effects are seen, creating a possible loophole. Consumer groups are concerned the credit card companies will use the time to hike up interest rates and fees while they can, reports CBS News business correspondent Anthony Mason

VTGreg

The funniest thing about Dodd's comments is that the new legislation will change nothing in his example but the timeframe. I don't believe there is any stipulation in the bill that doesn't allow credit card companies to decrease your credit limit and the credit card companies can still raise the rate as much as they want, they just have to provide notice either 30 or 45 days in advance. May not happen overnight but the end result will be the same.

Much of the teeth that was in the House version of this bill was removed as it went through the Senate.

cheapie

who needs a credit limit of $32,000???

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Nija

That's a car.

Like a Challenger

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zippyjuan

Several years ago they kept raising my limit. Once it got to $20,000 I decided that was crazy and asked them to reduce it to $5,000. My first ever credit card (in or graduating from college I don't remember) had a $250 limit. Kids with no real jobs can get them for thousands.

Thesifer

They get a ton of money from everyone buying crap already. Every single credit card purchase that goes down gives them around .03%-.05% (or close to it) of whatever you spent. I can't remember the number exactly, but the percentage of people not paying in a timely manner isn't going to make credit companies go broke.

That's why when you go to a gas station some of them have "Credit" and "Cash" prices. They don't have to pay the fees, so they pass some of that savings onto the consumer.

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Jeffbx

It's kinda silly actually. My primary card now I think has a limit of $28k, and I don't think I've ever spent more than a few grand on it over the course of a month (I'm a 'deadbeat' - I pay it off every month). Maybe they're just hoping I'll stop paying it off in full & fill it up to my limit?

johnnymk

Will New Law Make Credit Cards More Expensive?


http://www.cbsnews.com/blogs/2009/05...y5034603.shtml

Ever since the extent of this economic crisis became clear, Washington politicians have been informing us that keeping a torrent of credit flowing to consumers and businesses justifies government bailouts and other extraordinary measures.

President Obama recently pledged to "focus on restoring the flow of credit that is the lifeblood of a growing global economy." House Majority Leader Steny Hoyer, a Democrat, said during the debate over last fall's TARP bailout that, without it, "credit, the lifeblood of any economy, might dry up across America." And the Treasury Department claims to be ensuring that credit is "flowing again to entrepreneurs and business owners."

Yet Mr. Obama signed legislation this afternoon that levies a slew of new regulations on credit card companies -- which lenders say will actually reduce the availability of credit. That's from no less an authority than American Express CEO Kenneth Chenault, who said his concern is with "credit being available, particularly to consumers who need it," according to Bloomberg.

Which, if you've been following along so far, is exactly the opposite of what Mr. Obama and his political allies say they wanted to achieve.

"Over the past decade, credit card debt has increased by 25 percent in our country," Obama said when signing the Credit Card Act of 2009. "Nearly half of all Americans carry a balance on their cards. Those who do, carry an average balance of more than $7,000. And as our economic situation worsened -- and many defaulted on their debt as a result of a lost job, for example -- a vicious cycle ensued. Borrowers couldn't pay their bills, and so lenders raised rates. As rates went up, more borrowers couldn't pay."

It's true that the measure the president signed isn't an anti-usury law; it doesn't explicitly prohibit annual interest rates that exceed, say, 25 percent.

What it does do: Bans so-called universal default, which meant that a default on one loan might raise rates for others. Restricts introductory "teaser" rates and immediate rate hikes. Limits what credit cards college students can receive. Requires more disclosure about interest rates and the consequences of late payments. Mandates that consumers must approve transactions that exceed credit limits.

All that adds up to reduced revenue for credit card companies, meaning that banks now expect to issue fewer cards, reduce benefits, or charge more fees. As a CBSNews.com article last month noted: "That could mean a return to annual fees or less generous promotions that give cash back, hotel points, or airline miles in return for spending money.

"To now pressure credit card companies not to raise their fees or more accurately price credit risk, will only reduce the availability of credit while undermining the financial viability of the companies, ultimately prolonging the recession and potentially increasing the cost of bank bailouts to the taxpayer," says Mark Calabria, director of financial regulation studies at the free-market Cato Institute.

Neither Washington politicians nor the credit card industry seems to want to admit this uncomfortable truth: Too many people were extended credit who shouldn't have received it. Too many people ran up too many credit card bills they couldn't afford. Banks, consumers, and Washington officials alike confused the housing bubble, the credit bubble, and the stock market bubble with normal economic conditions.

But now that unemployment is rising and Americans are falling behind on credit card payments, banks have been tightening the screws to avoid being hurt more by defaults.

As the banks argue, the legislation that Mr. Obama signed today will probably make credit somewhat more expensive and difficult to obtain. On the other hand, Federal Reserve data show that Americans are saving more than during any time in recent memory. So even if credit cards become less attractive, it may not matter quite as much as it would have a few years ago.