Today’s passage of H.R. 627 , also known as the Credit Cardholders’ Bill of Rights Act of 2009, is great news if, according to the terms and conditions of my credit card, the definition of great is horrible. While its patriotic title and good intentions may impress the average voter, these credit card regulations have caused more problems for credit cardholders than late payments and over the limit fees combined. And the bill won’t even take effect for nine months.
The problem with this bill and, more precisely, the threat of this bill is that it threatened to fundamentally alter a business that, without government interference, was fundamentally troubled. Before the threat of this legislation existed, credit card companies were not raising interest rates across the board on consumers with good credit. Nor were they hitting good customers who simply missed a single payment with default rates. Essentially, all of the horrible things credit card companies have done in the past few months seem to be tied to the fact that they were scrambling before the new laws took effect.
Of course, the new laws won’t help all the people who have been victimized by these less than judicious rate increases. Nor will it help people who are hit with rate increases during the next nine months. Furthermore, it will hurt people with good credit who will now be subsidizing the mistakes of irresponsible lenders and perhaps even more irresponsible lenders.
Here are just a few ways intelligent credit card users will be hurt:
- 0% balance transfers: A lot of people have bailed themselves out of credit card debt hell with 0% rates. Unfortunately, the people who really need them now will have a hard time getting them. And in the next few months, its likely most offers for balance transfers will only last 6 months, come with higher balance transfer fees, and perhaps the zero in 0% balance transfers will be replaced with a 3% of 5%. So all the millions of people who suffered random rate increases will be stuck with 16% or 22% rates, since no credit card company will be interested in loaning them money at 0% rates.
- Credit card rewards: Smart consumers can easily use credit cards profitably with rewards credit cards. Not for long. These programs, already cutback from the more generous days of yore will be much less rewarding or carry substantially higher fees that will erode the rewards power.
- Grace periods: This may be the real killer. People who pay their credit cards on time and in full every month pay no interest. However, eliminating grace periods or charging annual fees on cards with grace periods may be in the cards. If this occurs, the second a person charges something, the interest starts running up. This is yet another tax on intelligent credit card users.
So, once again, laws intended to help consumers during the credit crunch will do the exact opposite. In fact, the only people who win here are the Senators who can say they stood up to the big banks. Unfortunately, by doing so, they may have delivered a fatal blow to credit card industry as we know it. And, despite the fact that it is easy to hate credit card companies, they have provided a valuable service to many. Many of us will realize how valuable that service was when we can no longer get approved for credit cards, when low interest rates start at 17% and when 0% balance transfers are discussed like 5 mile walks to school (uphill, both ways).
Personally, I’ve always been on the side of consumers. And I still am. Unfortunately, what was best for the credit card companies was also best for 70% of consumers. Thus, I think the new credit card bill is [expletive deleted].
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