Will Bill to Freeze Rates Bolster Consumers?

By Mike Mish Shedlock  OCT 27, 2009 9:25 AM

Yesterday was a swirl of questions -- but answers begin today.


Yesterday, in Unregulated Credit Card Rates Are Breaking Down Consumers, I wrote "If ever there were screams of "Please regulate me," these actions by First Premier and Citigroup (C) must be at the top of the list."

Well, that was fast.

Dodd Introduces Bill to Freeze Credit Card Rates

Although Senate Banking Committee Chairman Christopher Dodd has talked about this before, I was amused to see Dodd Introduces Bill to Freeze Credit Card Rates yesterday afternoon.

… Dodd on Monday introduced legislation that would temporarily freeze credit-card interest rates on existing balances, after saying that financial institutions weren't supporting a new credit-card law.

"No sooner had it been signed into law, credit-card companies were looking for ways to get around the protections this Congress and the American people demanded," said the Connecticut Democrat. "This bill would end those abuses and further protect customers today."

Congress in May approved a credit-card law, known as the Credit Card Accountability, Responsibility, and Disclosure Act, to crack down on abusive practices by credit-card issuers. Dodd's legislation would freeze rates on existing balances until the remaining provisions of the CARD act go into effect by February, at the latest.

Specifically, the CARD law would only allow interest rate hikes on existing balances based on limited conditions, such as when promotional rates expire or when a cardholder is late on a payment. The law also bans deceptive practices and includes a number of new transparency measures, including a provision that prohibits interest-rate changes without 45 days of advance notice.

Bankers Opposition

A bank-industry group expressed concern about the House legislation, known as the Expedited CARD Reform for Consumers Act of 2009. A senior vice president for the American Bankers Association said it would be "extremely difficult, if not impossible" for them to meet the new December 1 deadline.

"Moving up the implementation date will place additional strain on institutions and is likely to further restrict access to credit at a time when consumers, small businesses, and the broader economy need it the most," Dodd said.

What's the Point?

If moving up the legislation will do what Dodd says, then what’s the point of the legislation?

Citigroup and others have been scrambling to beat the clock, probably well aware of Dodd's legislation in advance.

The only way the legislation will have much meaning is if it’s retroactive.

Bear in mind that I’m in favor of a free market, but we don't have anything approaching that. Banks started extending credit to obvious deadbeats because of the Bankruptcy Reform Act of 2005. The sole intent of that legislation was to make people debt slaves forever.

Rather than calling for rate cap legislation, I’m calling for sound money and establishment of, actually abolishment of, the Federal Reserve. If we do that, rates will take care of themselves.

An Email for the Road

Hi, I just read the article about Citi raising rates. I just got the letter and I do not even have their card.


It's a Good Thing

Unlike Senator Dodd, I think that if these rate-jacks curtail consumer credit, it will be a good thing, not a bad one.

As I said yesterday:

The odds are this will be the final incentive for many to get out of the debt slavery trap they’re in. The more people that cut up their cards and tell banks what’s on their minds, the better off we will all be, and that's a good thing.

Email from Citi's Vice President, Public Affairs

Yesterday morning, in response to my posting, I received the following email from Citi's Vice President, Public Affairs:

Hi Mr. Shedlock,

I have read your blog posting from Mish's Global Economic Trend Analysis, which appeared earlier today.

I am wondering if we can have a background discussion at your convenience.

Best regards,

Samuel Wang
Vice President, Public Affairs

Cordial Conversation

I gave Mr. Wang a call and the conversation was quite cordial. He explained that customers could opt out of the rate hikes, and that in some instances consumers could keep using their card up to the expiration date of the card at their old rate.

What I asked Mr Wang:

Whatever answers I get, I will post.

It would also be nice to see what Chase (JPM), Bank of America (BAC), and MNBA are doing with their customers.

Opting Out

CreditCards.com explains opt-out procedures and other information consumers should know in Consumer Q and A: Credit Card Law, Phase 1, Debuts:

Q. When can consumers begin to use their opt-out rights for credit card changes?

A. Any notices of changes in terms received on or after August 20, 2009, must contain information about consumers' new right to opt out of (or right to cancel) increases in interest rates, fees, finance charges, and certain other changes in credit card agreements.

Opting out means the consumer can no longer make purchases with the card. Instead, the old, lower interest rate will be applied while the cardholder repays the balance. There are three methods for repaying balances on accounts that have been closed by consumers choosing to reject changes. Issuers can either:

Credit card issuers cannot demand payment in full if consumers choose to opt out of changes to their accounts.

Q. Do consumers have the right to opt out of all changes in terms?

A. No. The Federal Reserve has ruled that consumers cannot opt out of increases in, reductions in, or interest rate hikes triggered when cardholders are more than 60 days late paying monthly bills. In addition, interest rates increased by virtue of increases … on variable rate credit cards also are not eligible for opt out.

There's more useful information about your credit card rights in the link above.

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