New Credit Card Rules: Who Really Benefits?

By Jabulani Leffall. Last updated 24 February 2010. 4 comments
Photo: YanC

By the time you imbibe these words with your eyes it will be easier to pay your credit card bill, easier to run up your bill, and easier to absolve yourself the responsibility of charging your card to the max.

As a preface, some of the new credit card reform rules that passed earlier this week did eliminate some very annoying and predatory business practices designed to line the pockets of credit card companies, and that’s a good thing.

Practices such as randomly increasing interest rates on outstanding balances, double-cycle billing, or carry-over balance billing are shady at the very least and outright usury at the most.

That said, it's a misnomer to, for lack of a better term, bill this as a victory for the people, to label what is essentially a passive bailout, reform. Yes it’s a misnomer — not quite a farce, but the word reform is not quite accurate either.

Let’s look at some of the fine points of the ruling, which at the end of the day is really meant to encourage you to go back into the store to get the GI Joe with the Kung-Fu grip; or take that vacation that you can’t afford to take; or go ahead and charge that engagement ring because after all, the best things in life are free and diamonds are forever.

Credit card issuers can’t randomly or just up and slap new interest rates on you. This is good because you can pay your bill and budget when you can pay and how much you pay without having cartoon eyes in the next billing cycle.

Credit card companies must give at least a month and a half (45 days) notice of any changes in card terms. This is positive because cardholders who don’t like the new terms should do what they should in most cases do anyway — pay off the balance and cut the card up.

Cardholders cannot be charged over-credit-limit fees unless the cardholder authorizes an over-limit transaction. Unless it’s literally a matter of life or debt, this shouldn’t apply to you. You don’t need those new Jet Skis and it won’t kill you to keep paragraph-paragraph passing that Kindle until the price comes down.

Credit card companies must state their rules clearly and tell customers how long it will take to pay off their balance. This is good in spirit but any cardholder who says they read fully the terms of their card contract — that is unless they’re a lawyer or a scholar in the ancient language of Bureaucratese Latin — is fibbing, maxed out, or both. Nonetheless, the closer to plain English — probably won’t say “do not use this plastic card unless you produce more than you consume” — the better for “victims” who find themselves in the hole.

Card companies can’t push up rates in the first year. This leaves room for 45 days notice on increased rates and room for interest rates to go up in the second and third year to push interest up after you charged that electronic step ladder and later decided to hire a roofer.

What type of credit card are you interested in?
How much do you spend per month?
Do you carry a balance?

Credit card payments that are more than the minimum must now to be charged to senior debt. This has nothing to do with High School, College, or Grand Slam breakfasts at Denny's. What it means is that the older or most pressing consumer debt with the highest interest rate will be where your $30 bucks on your $2700 balance goes, instead of just paying for interest and late fees. Like the “over-limit transaction” rule, if you’re a beneficiary of this you’ve already done way too much.

Credit card companies cannot charge interest if debt is paid on time. This is the most sensible rule of all, and shame on credit card issuers who were doing otherwise.

Issuers must get the signature of a parent or guardian when extending credit to consumers under the age of 21. This is a great idea but probably still won’t stop college kids from going to the ATM with their credit cards or using branded cards.

In the end, the Obama administration will get a pat on the back for fighting for the little guy, but these are new rules encourage you to come back once again and spend what you don’t have. They also don’t apply to what you’ve already spent, which you didn’t have.

Unfortunately, credit as originally intended, used to be a financial tool for the industrious, used for business growth, as a promissory note against gold or something tangible. This credit model is no more. There are credit markets where you can trade debt for debt ,even trade based on the probability that a third-party will be a deadbeat. Face value for face value is no more in this system of credit.

It used to be that credit was used as a deferred payment through promise designed to spur risk and motivate borrowers to produce. Now as our unemployment, savings rates, and consumer debt levels suggest, credit has in more modern times been used by the upper class to hold everybody for ransom. The upper middle and middle class have used credit to pay off other debt and laugh heartily at the neighbor who has the Range Rover 4.0 instead of the Range Rover 4.6. The lower middle class and working poor has used credit to float ourselves as we look for better opportunities or pay our way through college or look for a new job but still want to fell “alive” via our purchases and in some cases, unemployed nights on the town.

To be sure, these new rules may be a good crusade, but what many or perhaps not enough are wondering aloud, is whether the new rules will encourage the same behavior that made them necessary in the first place.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

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Guest's picture
Amanda

But the credit card companies just come up with new and exciting ways to rip you off... one of my cards has just informed me that they will charge a $60 annual fee... I've had this card for 12 years and there was never an annual fee. What's worse is that NEW applicants can apply and it shows NO ANNUAL FEE!!

Guest's picture
Guest - annoyed in Okahoma

Thank you, Amanda. I just added a link to the "no annual fee" offer to my letter of protest I'm mailing to that card-issuer and my congressional delegation and seriously considering posting on a brand-new blog.

(Cardholder since 1991)

Guest's picture
Roxanne

When reading through your article, it occurred to me that you were giving us the facts (which are all quite good), while trying to dismiss the bill as worthless at the same time. ??? Why can we not give kudos where kudos are due? Granted, more reforms are needed, but can we not say 'thank you' for what we are given rather than lament what we are yet to get?

Gratitude goes a long way.

Jabulani Leffall's picture

Thank you for reading the post Roxanne, I didn't say it was worthless. What I said was the bill's true design is consumer enablement and consumer protection is secondary.

At the end I said as much by posing this question:

"To be sure, these new rules may be a good crusade, but what many or perhaps not enough are wondering aloud, is whether the new rules will encourage the same behavior that made them necessary in the first place."

 

 

Jabulani Leffall

Monetary Gadfly, Common Currency

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