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Will Bill to Freeze Rates Bolster Consumers?

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

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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.

Steve

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No positions in stocks mentioned.
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