Obama to Sign Cardholders' Bill of Rights
By Scott Reeves Jan 20, 2009 2:00 pm
New rules take effect in 90 days - no need to wait till 2010.
There's a simple solution to all the flapdoodle about rapacious credit card issuers: Pay your bill in full each month.
This avoids interest charges and builds a solid credit rating while using the bank's money interest free for about a month.
But this is America, land of the perpetual victim, where no one bothers to review a credit card's disclosure statement.
New credit card regulations take effect in July 2010. Representative Carolyn Maloney of New York has reintroduced the Credit Cardholders' Bill of Rights, which offers the same reforms and would become effective 90 days after President Obama signs the bill into law; the proposed plan could effect such issuers as MasterCard (MA), Visa (V) and Capital One (COF).
The changes, the most significant in about 30 years, affect how banks market and bill credit cards. Here's what you need to know:
- Higher interest rates on a current balance will be permitted only under specific conditions such as the expiration of a promotional rate, late payment or a variable rate. Interest rates on new transactions can be increased only after 45 days' advance notice.
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There will be no more universal default, nor raising interest rates based on a customer's payment history with utility companies or other credit issuers not affiliated with the bank issuing the credit card.
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Payments will be due at least 21 days after the bill is mailed or delivered. Credit card issuers will no longer be able to set early morning deadlines for payments.
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When a different interest rate is applied to various balances, payments will be applied first to the balance with the higher rate or divided proportionally.
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Customers exceeding their credit limit will no longer be hit with a fee if a hold has been placed on their account. This routinely happens to customers who reserve a hotel or rental car when merchants place a hold on the account for the entire amount to be billed several weeks or months in the future.
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Finance charges on a balance due will be computed on charges in the current cycle rather than going back to the previous billing cycle. Double-cycle billing hits customers who pay their balance in full one month, but not the next.
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Terms will be disclosed in plain English.
The new rules sound great, but may have the unintended consequence of forcing those who manage their credit well to subsidize those who don't. This could mean higher interest rates for everyone.
Still, some people refuse to understand this bit of folk wisdom: If you haven't got it, don't spend it.
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Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
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2009-01-20 11:04:47
I've got an MBA in finance
And I can't figure out the disclosures and rules sent to me by Citi every month or two.
And I can't arrange to pay on time easily every month, because they keep changing my payment date, for no reason I can see other than to cause me to miss a payment.
And despite the relative sophistication of their "pay online" feature, they won't give me the one thing I'd really like: An option to ask them to just pay off the card in full every month, on the day it's due. They don't fail to offer this because the technology doesn't permit it.
These guys go out of their way to make even responsible people miss payments and do other things that will cause us to pay fees and interest even when our intent is to pay off everything in full every month.
Of course, the ultimate solution is to break up the de-facto banking cartel, in which a few major participants have used their market power to force everybody else out of the business. Sadly, rather than breaking up these inefficient and anti-competitive cartels, the government seems intent on preserving them in the name of "saving the system."
And I can't arrange to pay on time easily every month, because they keep changing my payment date, for no reason I can see other than to cause me to miss a payment.
And despite the relative sophistication of their "pay online" feature, they won't give me the one thing I'd really like: An option to ask them to just pay off the card in full every month, on the day it's due. They don't fail to offer this because the technology doesn't permit it.
These guys go out of their way to make even responsible people miss payments and do other things that will cause us to pay fees and interest even when our intent is to pay off everything in full every month.
Of course, the ultimate solution is to break up the de-facto banking cartel, in which a few major participants have used their market power to force everybody else out of the business. Sadly, rather than breaking up these inefficient and anti-competitive cartels, the government seems intent on preserving them in the name of "saving the system."
2009-01-20 14:19:07
Subsidy
How does making the credit company not screw some of the people raise your costs? If your business was not sufficiently profitable, they would do something to make it profitable or get rid of it.
The money they are getting by jacking up the rates on people with balances that they can't pay off to avoid it is going in the issuer's pocket and not subsidizing your card.
The money they are getting by jacking up the rates on people with balances that they can't pay off to avoid it is going in the issuer's pocket and not subsidizing your card.
2009-01-20 14:23:02
Shouldn't have to make a law about this...
If all perfect credit card customers are paying their cards off in full each month, then they don't have to worry about the consequence of higher interest rates. You are right in this respect, this shouldn't have to be a law, it should just be good business practice, but when a bank changes you agreement every 30 days and then increases your interest rate 3X based on some internal formula instead of your payment history with them, such as Bank of America did in March '08 and quickly back pedalled when the press got a hold of it, only to then begin changing payment dates to the point where payment was due on 3/1, 3/31 and 4/24 it gets ridiculous. So at year end when I pay myself a dividend, I pay my bills off in full and the BAC promptly reduced my limit from $12,800 to $6,800. I will not use BAC for any commercial lending purpose in the future, because they don't stick to their word, and they don't manage risks very well. FICO score is 782... I do pay my bills!
2009-01-20 14:29:14
Probable side effect
Credit will be harder to get for those who probably shouldn't have it. It is a bit of folk wisdom that nothing will fill your mailbox with credit card offers faster than falling behind on your payments or going into foreclosure.
The banks are making their money from the people who have trouble making their payments. If they can't hit those people with late fees, high interest rates, and so on, they are probably not worth the risk.
Whether this raises everyone else's rates is an interesting question. Theoretically the bank still makes money on those who pay their bills on time via fees charged to merchants. If they make less money elsewhere, will they raise costs to good borrowers? Competition says no. Greed says yes. The race is on.
The banks are making their money from the people who have trouble making their payments. If they can't hit those people with late fees, high interest rates, and so on, they are probably not worth the risk.
Whether this raises everyone else's rates is an interesting question. Theoretically the bank still makes money on those who pay their bills on time via fees charged to merchants. If they make less money elsewhere, will they raise costs to good borrowers? Competition says no. Greed says yes. The race is on.
2009-01-20 14:32:49
Shouldn't have to make a law about this...
FICO over 800 and I have a story about Chase.
We signed up for a "zero interest for one year on existing balance" card a few years back. Transferred a small (couple thousand) dollar balance from an existing card.
Every month - and I mean EVERY month - in the fine print on the back, there was a notice that Chase would raise our rates to something very much non-zero, unless we contacted them in writing. Starting with month one. My wife got tired of the game and we closed the account after a few months.
That's false advertising in every sense of the word except the legal one. Fraud, too. The moral equivalent of theft.
We signed up for a "zero interest for one year on existing balance" card a few years back. Transferred a small (couple thousand) dollar balance from an existing card.
Every month - and I mean EVERY month - in the fine print on the back, there was a notice that Chase would raise our rates to something very much non-zero, unless we contacted them in writing. Starting with month one. My wife got tired of the game and we closed the account after a few months.
That's false advertising in every sense of the word except the legal one. Fraud, too. The moral equivalent of theft.
2009-01-20 17:56:20
A Month fo 'Free' Money...
.... Credit card companies wouldn't be letting anyone use their money for a month, month after month, unless their statistics dept. had assured them that there would be a high percentage of cardholders messing up in one way or another and racking up those huge fees and default compound interest rates that double the balance owed in 3-4 years... doubling the balance allows a tax deduction for an amount equal to the whole original balance in the case of a total default... slick...
2009-01-20 20:36:27
I've got an MBA in finance
So do I and I'm going to have to completely agree with Michael. And not to bash a professor as I respect Todd's comments today, but this column, like many of Scott's others, give the impression that he discussed it over coffe this morning with Rush Limbaugh.
2009-01-20 21:25:36
Credit Cards
So, what would card issuers do without all those interest payments?
2009-01-21 07:57:17
credit card fees
yes you are right we should all get out our magnifying glass and dictionary and study those financial statements. No reason on earth to believe that the card companies advertisements would be truthful so we should all instinctively know they are liars and can't be trusted. But more importantly, for those who don't have a business degree to understand double cycle billing and the system of posting that makes sure you get an overlimit fee added to your next bill or those that get laid off and just can't pay in full they should know going in that America is about protecting the rich on Wall Street and that the card companies and their proponents just don't think they should have access to credit.
2009-01-21 09:21:03
Dear Scott,
Sounds like a good bill to me; but why were the card companies given special protections when the bankruptcy laws were overhauled not-too-many years ago?
You can take a chapter & get out from paying X, Y, & Z, but your debts to M, V, & C1 are forever.
Also, why didn't they leave that mafia monopoly alone? Used to be against the law to charge 24%/year. (Actually, the bar was a lot lower than that.) Do you realize how many good "soldiers" had to take a cut in their take home pay?
There oughta be a law...
Well-written article.
Best,
Seamus O'Bannion
seamusobannion.blogspot.com
Sounds like a good bill to me; but why were the card companies given special protections when the bankruptcy laws were overhauled not-too-many years ago?
You can take a chapter & get out from paying X, Y, & Z, but your debts to M, V, & C1 are forever.
Also, why didn't they leave that mafia monopoly alone? Used to be against the law to charge 24%/year. (Actually, the bar was a lot lower than that.) Do you realize how many good "soldiers" had to take a cut in their take home pay?
There oughta be a law...
Well-written article.
Best,
Seamus O'Bannion
seamusobannion.blogspot.com
2009-01-21 18:19:47
Credit card fees / interest rates
If the credit card companies cannot behave themselves what do they expect? I had ( yes had I canceled just yesterday) a Chase card. 25k line on it most I ever had on the card was 7k and I paid it religiously. Got the balance to zero and kept it their. Yesterday notice came in the mail they were taking the interest rate from 10.99 to 22.99. Why? well their guy at support said too many defaults. So the brainless bean counter at Chase decided to jack a excellent customer around and raise the rate o9n the card to a loan shark level. Little wonder the banks need bail outs they have idiots running them. I would jack the guy around that is not paying not a good customer, but hey I've only got a high school ed and run three businesses so what do I know?
Once the money is charged the rate should not go up. They borrowed from who ever at that rate why should they arbitraily get such a huge windfall? Aren't these the same banks we as taxpayers are bailing out so their execs get their bonuses? So they give it to us again?! Aren't these the same banks getting money from the Fed at .25% and they are going to charge 22.99% I'd rather do business with the mob.
Why do these writers always look at the individuals as the bad guys? Nail them not ME! How about an article on the ridiculous pay these banks execs get, the absolutely stupid derivatives trades that are now taking them down? If you think it is a sub prime problem you need to do some reading. It is a derivative problem, they made bets against bets with no assets behind the trade. FOOLS!!! Why not hold them responsible for their actions instead of always looking to the taxpayer to bail them out so they can stick to the common guy? Let them go bankrupt and put somebody in jail!!
Once the money is charged the rate should not go up. They borrowed from who ever at that rate why should they arbitraily get such a huge windfall? Aren't these the same banks we as taxpayers are bailing out so their execs get their bonuses? So they give it to us again?! Aren't these the same banks getting money from the Fed at .25% and they are going to charge 22.99% I'd rather do business with the mob.
Why do these writers always look at the individuals as the bad guys? Nail them not ME! How about an article on the ridiculous pay these banks execs get, the absolutely stupid derivatives trades that are now taking them down? If you think it is a sub prime problem you need to do some reading. It is a derivative problem, they made bets against bets with no assets behind the trade. FOOLS!!! Why not hold them responsible for their actions instead of always looking to the taxpayer to bail them out so they can stick to the common guy? Let them go bankrupt and put somebody in jail!!
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