Credit Card Bill Sails To The President
I will probably blog about credit cards for the rest of my life without seeing any larger, more significant events than those of this week. When President Obama signs the Credit Card Bill of Rights, it will be a whole new ballgame out there. There is a lot of disinformation out there about the effects of this bill. On many of it’s ramifications it is fair to say that no one knows how the future will look.
Separating Myth From Fact
So far, this is the best article I have read about the future of the credit card industry. Bob Sullivan of MSNBC’s Red Tape Chronicles deserves credit for wading through all of the unrealistically high expectations and doomsday forecasts offered by interests on both sides of this act. Some of his insights are clearly aimed at the most casual followers of this bill. The fact that no interest rate cap was included should not be a surprise. I actually believe that there might have been some serious reduction in available credit with a 15% interest cap. I would have supported a 30% interest cap however. If banks require that rate of return in order to price their risk, neither the bank nor the borrower should be in the market.
Sullivan predicts it will raise your rates, and I accept that. I would prefer an honest higher rate than a low rate in big letters, followed by bunch of tricks and traps in microscopic print. He also seems to agree with me that people who pay their bills on time will NOT be hit with huge annual fees and other negative implications. Sure, I know some banks will try it, but this business is so hyper competitive, I have no doubt that the market will sort it out. I will only tolerate a minimal annual fee on my finest reward cards, like my Starwood Amex.
Oddly, he seems to feel that the new bill will not speed up the rules previously enacted by the Fed, even though it will. The new rules take effect in February, rather than July 2010. That is a huge difference in my book.
I also disagree with his conclusion that consumers should “celebrate a LITTLE”. This bill is almost everything I could have hopped for and represents a MAJOR win for consumers. It is rare that the government ever takes any action that has a noticeably positive effect on so many people. I think this is the biggest victory for working people since the Family and Medical Leave Act of 1993. Sure, I would have liked to have seen an interest rate cap of some sort, but otherwise, I couldn’t have written much of a better bill myself.
Make no mistake, banks will start raising interest rates and looking for new ways to generate fees. My only hope is that they will at least think twice before doing so. As this happens, consumers can and will cancel their cards for new ones when the fees become unacceptable. This is a great time to join myself and others who, by paying every bill in full, use credit cards as a method of payment, not a method of finance. It will become easier to pay your bills on time now that they must send the them out 25 days in advance, and they can’t be due on a weekend or a holiday.
If you do happen to pay one bill less than full, you won’t be charged interest on previously paid charges. If the worst happens and you skip a single payment, they cannot raise your rates. The devil is always in the details, and these are major, major victories.