Credit Card Reform

This is surprising:

In a blow to financial firms, the U.S. Senate Banking Committee on Tuesday signed off on legislation that seeks to ban abusive credit-card practices.

While consumer groups and key Democrats lauded the committee’s move, the 12-to-11 vote in favor of the controversial bill was very narrow. Thus, the committee’s chairman, Sen. Christopher Dodd (D., Conn.), said he would work with lawmakers–both Democratic and Republican–to modify the bill and broaden support before the bill hits the Senate floor.

“My intent is to work things out and move forward. This was going to be difficult–I knew that,” Sen. Dodd told reporters after the vote. “This is the first step in a process.”

The bill seeks to prohibit card issuers from unfairly raising interest rates. It would prohibit applying rate increases retroactively to existing balances and it seeks to boost consumer disclosures. Additionally, it seeks to limit certain over-the-limit fees and interest charges and creates new requirements for card issuers looking to extend credit to youngsters under the age of 21. The amended bill would also make it easier for gift-card recipients to use the cards.

The bill probably doesn’t go far enough to rein in the abuses, so it will be interesting to see what the House does.

Also, “youngsters?”

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40 replies
  1. 1
    DougJ says:

    This will just make it easier for minority welfare deadbeats to avoid paying their debts, you know.

  2. 2
    merl says:

    I’m pretty sure that WA is the only state where gift cards don’t lose value the longer you hang on to them

  3. 3

    This sounds a little like the credit card consumers bill of rights that was offered in a previous congress. I hope they pass this little bit of a check on credit card industry power. But I somehow doubt it will happen.

    Instead, the credit card companies will cut off their noses to spite their faces as usual.

  4. 4
    Keith says:

    I’m going to go out on a limb and assume that the "can’t raise intrest rates on existing balances" doesn’t apply to balances that have already had their rates raised.

  5. 5

    P.S. – I will be so glad when those idiot pjtv ads disappear tomorrow. TCOT? TIOT (top idiot on twitter) is more like it.

  6. 6
    Martin says:

    I’ve never understood why the default legislative position isn’t "Well, that bill led to some really fucked up shit, let’s repeal it, go back to what we had before which wasn’t horrible, and figure out how to move forward from there"

    Instead it seems like legislators are intent on constantly trying to build the castle in the swamp. Why not just repeal Gramm-Leach-Bliley and the Credit Card Deregulation bill, go back to a state that wasn’t fucking everything up so badly, figure out what of the changes worked and what backfired, and proceed from there?

  7. 7

    @Martin:

    You’re applying waaaay too much logic to congress. But it does sound like a good idea – the "Reset button" amendment, perhaps?

  8. 8
    Miriam says:

    This is totally OT but really important. It turns out Treasury has borrowed $700 billion from the Social Security Trust Fund. This is really, really bad. That money has gone straight to the banks.

    http://www.congressmatters.com/

  9. 9
    Comrade General Stuck says:

    I’ll believe it when I see it in law and not some Orwellian final bill that fluffs the big CC Co.’s, with their campaign cash trough. When it comes to this issue, our usually liberal NE Senators get kind of wingnutty in their votes.

  10. 10
    Xecky Gilchrist says:

    The bill seeks to prohibit card issuers from unfairly raising interest rates.

    This, when just this week a friend of mine told Citibank to FOADIAF and transferred her balance because they had a robot call her up to announce a new higher interest rate and minimum payment. I bet she’s not the only one to do that.

  11. 11
    passerby says:

    Here’s Dodd’s public argument for this action that he posted on HuffPo.

    It’s not enough but at least it brings the issue to the forefront.

  12. 12
    Dennis-SGMM says:

    …Sen. Christopher Dodd (D., Conn.), said he would work with lawmakers—both Democratic and Republican—to modify the bill and broaden support before the bill hits the Senate floor.

    A weary but triumphant Sen. Christopher Dodd emerged from the House-Senate conference holding the draft of the Credit Card Reform Bill high. "It was tough," acknowledged Dodd, "but I can assure you that enslavement and the harvesting of organs is out." Dodd went on, "The amputation piece needs a little clarification though."

  13. 13
    passerby says:

    "It was tough," acknowledged Dodd, "but I can assure you that enslavement and the harvesting of organs is out." Dodd went on, "The amputation piece needs a little clarification though."—Chris Dodd.

    Heh. Truth in jest.

  14. 14
    Zifnab says:

    Also, “youngsters?”

    It’s what they’re calling the whippersnappers these days. You know, the ones that won’t get off my lawn.

  15. 15
    TenguPhule says:

    The bill probably doesn’t go far enough to rein in the abuses, so it will be interesting to see what the House does.

    Anything less then making credit card issuers squeal like stuck pigs doesn’t go far enough.

  16. 16
    Zifnab says:

    @TenguPhule: So… you’ll accept anything?

  17. 17
    TenguPhule says:

    @TenguPhule: So… you’ll accept anything?

    No, I mean we have to stick them like pigs.

  18. 18
    Bostondreams says:

    Instead it seems like legislators are intent on constantly trying to build the castle in the swamp.

    They are just to hoping to finally find that one girl with huge…tracts of land. Or that certain..special…something.

  19. 19
    Delia says:

    @TenguPhule:

    Anything less then making credit card issuers squeal like stuck pigs doesn’t go far enough.

    Doesn’t take much for that. On NPR this morning I heard some card company rep whingeing that this bill will cause the end of civilization as we know it. Not that that’s a bad thing.

  20. 20
    Colonel Danite says:

    I’m going to take the CC issuers’ side for a moment (I think I threw up in my mouth a little). While banks and other issuers are heartless bastards, it’s not as if they don’t warn consumers in advance. Regulation Z is very clear about what the card issuer has to disclose to borrowers. Yes it is often in tiny print. However, the reality is that consumers just don’t bother to read it or try to understand it. Borrowers just want the credit and the goodies they can buy with it . The stark reality is that consumers should learn to live within their means and not expect lenders to take losses because borrowers over extend themselves. All that said, I support a Credit Card User Bill of Rights that prevents the most egregious lending practices and helps consumers avoid screwing themselves over.

  21. 21
    Delia says:

    @Colonel Danite:

    I have a Capitol One card that had been my primary card until last month. When they called me five years ago to ask me to please start using it again and they would lower the interest rate to 5.99 forever (as long as I maintained the account in good standing) and give me airline miles to boot. So I did. They put it in writing. I’ve paid it off in full every month. I have an excellent credit rating. Last month I got a notice saying that "because of the extraordinary conditions in the economy" they were raising my rate to 15.99.

    These clowns do these things because they can and there’s nothing at the present to stop them. They’re the very definition of legalized crime.

    And BTW, I really love those ads that are on TV right now about the people who are in tough circumstances and they call their credit card companies and find kind, understanding folks who help them out. More likely they find guys who’ll come break their kneecaps for nonpayment.

  22. 22
    Mike says:

    re: "youngsters"
    I own a retail store, and a few days ago, I heard a kid who couldn’t have been older than 10, tell his mom he’d pay for something "with my credit card".

  23. 23
    Dennis-SGMM says:

    @Colonel Danite:
    Careful, next thing you know you’ll be saying that buying things you don’t need with money you don’t have to impress people you don’t know might not be the best way to get through life.

  24. 24
    Colonel Danite says:

    @ Delia. I know it and they suck. However, I guarantee you that the ability to raise the interest rates at will are in the account terms and conditions. Because you have good credit and were able to scrape up the cash to pay off the balance, you were able to take appropriate action and tell them where they could stick their plastic. That is the key lesson here. You should never put yourself in a posotion where you have to live with a price increase. You should be able to walk away and find a better deal That’s the way the market is supposed to work. Issuers should be able to price their product amy way they wish and consumers can buy buy the product they want with the terms they think suit them best.

  25. 25
    Mnemosyne says:

    I’m pretty sure that WA is the only state where gift cards don’t lose value the longer you hang on to them

    Nope, California is like that, too. You also can’t put an expiration date on a gift card or gift certificate in California — it’s good forever.

  26. 26
    Comrade General Stuck says:

    @Colonel Danite:

    I learned my lesson about six years ago when they raised my interest rates. The actual agreement I signed did not specifically state they could raise my interest rate for what they did. Instead, it was a mush of legaleeze and indirect. I had to have a lawyer explain it to me.

    We ended up in court, though I knew I would lose and represented myself. The company gave the judge a 20 plus page printout of the terms that spelled out in plainer English, what the rules were.

    The judge asked if they expected him to believe I was afforded this document, and when they told him I could have requested it per a statement in the original agreement form, he read them the riot act over the phone (the assholes phoned it in). I lost, but when it was over, the court reporter, and baillifes clapped their appreciation at the judges smackdown. They were the only ones attending this important landmark case. tee hee/

    Deceptive lending practices are always legal in the end. But they are still deceptive. I paid off the card and wouldn’t get another, if my life depended on it.

  27. 27
    Origuy says:

    @Mnemosyne: Not entirely. If the card is for a specific merchant, say Borders or Starbucks, it doesn’t expire. If it is one of those "Visa Gift Cards" that can be used in many places, that rule does not apply.

  28. 28
    Mnemosyne says:

    @Colonel Danite:

    However, I guarantee you that the ability to raise the interest rates at will are in the account terms and conditions.

    It’s in the terms and conditions of every credit card, so I’m not quite sure where you’re picturing this "better deal" will magically appear from.

    Personally, I don’t have a single credit card — not one — because I don’t like the idea that they can change the terms and conditions of my account at will and I have no recourse but to close the account and try to find a different company that might maybe possibly screw me over very slightly less. Of course, this means I have a terrible credit rating because your credit rating is so heavily based on your credit card use, but there’s no way around it. Either you play their game with the knowledge that they will screw you over one way or another, or you opt out and lose out on your chance to get other kinds of credit at a decent rate.

  29. 29
    Mnemosyne says:

    @Origuy:

    If it is one of those "Visa Gift Cards" that can be used in many places, that rule does not apply.

    I don’t think it’s so much that it expires as that you have to pay a maintenance fee if you haven’t used up the balance of the Visa gift card within 6 months or a year, so eventually the entire balance goes to fees if you don’t use it soon enough.

    I’d be kind of surprised if Washington state was able to get a deal with Visa that they’re not allowed to do that there but, yes, if you buy a Visa gift card in California, they’re allowed to take those fees. MSN Money has a pretty good article spelling out the pitfalls.

  30. 30

    […] In 2005 I had a lot to say about bankruptcy “reform”. These “reforms” put corporate interests above consumer protections, and probably contributed to our current credit and mortgage crisis. Interestingly enough, we have news that Congress is finally talking about reigning in some credit card abuses. […]

  31. 31
    Colonel Danite says:

    @ Mnemosyne

    Get an Amex Charge Card (the old fashioned green one) and pay it off each month. No interest and no long term debt.

    My point on the "better deal" was that you should always be in a position to shop for a better deal. If you maintain low balances that you could pay off in a pinch and maintain a good credit record, you can always drop one card and move to another one. Even if you have to switch every few months or years, it’s better than having to live with whatever your card issuer feels like charging you because you can’t afford to leave them and no one else will issue you a line.

  32. 32
    South of I-10 says:

    This may be the only good thing that has happened all day.

  33. 33

    I don’t have any credit cards. I have two debit cards tied to checking accounts, I own a house, and I pay for stuff upfront. Because I already own the house, I don’t really give a flying fuck what the credit card people rate me. It would be funny as hell if they were giving me a lousy credit rating because I didn’t need them :)

    I have a raft of connections to call in if there’s an emergency before even considering the crazy notion of crying for help to a MAJOR FINANCIAL CORPORATION. That’s kind of like ‘wait, what?’ and it amazes me that other people don’t see it.

    Earn fucking money and spend it. The credit card way, you’re going to have to be earning it anyway, you know.

  34. 34

    What will be interesting is the huffing and puffing from the industry’s pet CongressCritters. Oo! And I almost forgot the laughably inept ads.

    I can’t wait to hear what Concerned Citizens for Credit Card Freedom (or whatever they’ll call the lame ass group that will magically appear in 5…4…3…) has to say.

    creates new requirements for card issuers looking to extend credit to youngsters under the age of 21.

    But will it require them to get offa our lawns?

  35. 35
    Tax Analyst says:

    Get an Amex Charge Card (the old fashioned green one) and pay it off each month. No interest and no long term debt.

    That’s the only one I have (well, I have the Gold one, but it’s the same deal, except $20 more a year and perhaps a higher unstated limit), and yes, I pay the full balance every month (on time).

    Waaaay back around 1978 or 1979 I got a letter from Bank of America that they were changing the terms/conditions and would be charging interest based on the "Average Daily Balance" – a "new" concept at the time, if you can believe that. I cut the card up into slivers and shards and slipped a note in with it telling them where they could put it. Then I paid off the balance and never looked back. The terms/conditions sucked – and yet compared to what is available today they actually look rather benign.

    This is an industry that has been badly in need of reigning in for quite some time, but they’ve generally had too many Congress-critters in their pocket for that to have happened. And that still might be the case. I guess we shall see.

  36. 36
    leo says:

    "The stark reality is that consumers should learn to live within their means and not expect lenders to take losses because borrowers over extend themselves."

    Apparently you’ve never been unemployed (or underemployed) for any extended period of time. If you had been, you’d know that living on the plastic is often the only option you have.

    People in these cases use their credit cards not for frills — but for rent and food for the kids. The credit card companies can charge these extortionist rates precisely because they’re dealing with a captive audience.

    Finally, preventing companies from jacking up rates from 5.9% to maybe 30% is the last thing I would describe as lenders ‘tak[ing] losses’.

  37. 37
    Colonel Danite says:

    @leo

    I got laid off in December and was fortunate to be back at work at the end of February. I was also lucky that the new job pays about the same as the one I lost although we have to relocate and now that my house is worth 20% less than it was 2 years ago, that is not going well (but that’s another story). Also fortunate for me was that I had some savings and light debt – home mortgage, one car (the other is paid off), my wife’s student loan and a home equity loan that I kick myself about getting now. Once I got the news about losing my job, my wife and I looked at our future and developed a plan. We could live off savings first (we had enough to last 8-10 months if we cut back on frills. We would then need to move on to credit cards if I was still unemployed. It would have been awful to be sure, but I have tens of thousands of dollars in available credit on my 2 credit cards precisely because I didn’t run up the balances in the past.

    I want Congress to prevent CC companies from raising rates on existing balances. I want Congress to prevent CC companies from canceling accounts because a customer’s overall credit profile has changed even if that customer has never been late with a payment. I want Congress to change the bankruptcy laws so that bankruptcy once again means a relatively clean slate for consumers instead of the debtor’s prison that the latest law effectively creates. I want Congress to compel CC companies to offer better disclosure in readable type and in plain English. However, I also want CC companies to make a reasonable profit and to extend credit to marginal borrowers by perhaps offering a higher priced product.

  38. 38
    leo says:

    @Colonel Danite

    So if the bank had decided during your period of unemployment to jack up your home loan to double or triple the current rate, would that have been okay?

    I mean, why limit this to credit cards? Let’s expand it out to any form of debt.

  39. 39
    Colonel Danite says:

    @Leo

    I wouldn’t have signed for a mortgage that allowed the bank to jack up my rate. When I applied for the credit cards, I knew what I was signing up for.

    There were some folks that did sign up for mortgages that readjusted within a year or two or three. The mortgages are called ARMs and way too many people bought way too much house thinking that the value of the home would soon reward them with huge equity positions and that they would be able to refinance in time to avoid the surprise.

  40. 40
    Bulworth says:

    It’s hard to believe that with all that’s happened with the market, finance industry and federal bailouts, and with a seemingly sympathetic Democratic congress, that nothing more than this has been done, and only a measly 12-11 margin for what appears to be a relatively benign bill.

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