Ups and Downs of the Latest Credit Card Bill

A new version of the Credit Card Bill of Rights has hit the Senate floor this week, and this one has some interesting provisions.  Here is a complete run down of the features of the new bill.

The first two things that jumped out at me were these:

• Requires penalty fees to be reasonable and proportional to the omission or violation;
• Enhances protections against excessive fees on low-credit, high-fee credit cards.

Maybe the article is abbreviating the details, but this seems awfully vague to me.    I don’t know how it will be determined what is “reasonable and proportional,” or who gets to determine this.

The next thing that caught my eye was this:

• Prohibits issuers from setting early morning deadlines for credit card payments;

I have never been caught by this, because I use my bank’s electronic payment system.  I suppose I should not be amazed by this kind of thing anymore, but I still am.   I can’t believe that companies are doing this!

In my opinion, the greatest achievement of this bill is this:

• Prohibits interest charges on debt paid on time (double-cycle billing ban);

I have known that it was in the bill, but I just had a thought.    This provision is going to be a blessing in disguise for the credit card industry.     I bet there are some people who avoid all interest charges because they end up paying interest purchases they have already paid for.    I imagine that some of the “dead beats” that always pay their bill on time might be more likely to actually pay interest, if they are only paying it on their balance due, not including last month’s balance paid.   I don’t think the credit card companies will make a net gain from this provision, I just think that it won’t be as bad as they think (it never is).

Here Is Where The Bill Takes A Wrong Turn

Under the guise of “Ensuring Adequate Safeguards For Young People” the bill has the following provision:

• Requires issuers extending credit to young consumers under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual 21 years or older who will take responsibility for the debt; or proof that the applicant has an independent means of repaying any credit extended;

• Prohibits increases in the credit limit on accounts where a parent, legal guardian, spouse or other individual is jointly liable unless the individual who is jointly liable approves the increase in writing.

Whoa!   Since when, outside of a bar, are U.S. Citizens aged 18, 19, and 20 treated under the law like minors?    I strongly object to the idea that young adults should be legally required to haveparental permission for anything, let alone a mere credit card.    These are people who have all of the same legal rights and responsibilities as those twice their age.   They can enter into contracts, get married, serve in the armed forces, and be tried for crimes as an adult.     Under this bill, no one under 21 can have a credit card without a co-signer.

Imagine a soldier calls in from Afghanistan to request a credit card limit increase so his wife can pay the bills and feed their children, and they are told they need their parent’s permission?    I have known soldiers in that position and that would be nuts!     I have no idea who thought this was a good idea, but it sets a dangerous precedent that goes far beyond financial products.

Just imagine what financial transactions, and other rights will be prohibited one day if this provision remains in the bill.  In the future, will my children be able to purchase a car, a house, or authorize medical treatments without my permission?

Look, I am fortunate to have wonderful parents with whom I have a great relationship, but that is not the case for everyone.  Many people are “cut off” when they turn 18 and are essentially on their own.   Others are the children of abusive parents.    Will these people be required to go begging to their parents for basic financial services?

The big question is will the parents be on the hook for their children’s spending?   Is this merely a collections measure by the credit card industry to go after the parents of college students who are unable to repay their debt?    No matter how you slice it, this provision needs to die a swift death before the bill is passed on to President Obama’s desk.

Overall

One bizarre provision notwithstanding, I strongly support this bill.     Tomorrow, will examine the industry’s response to this measure.