Advocates applaud changes to credit card regulations
Consumers
get more protection
Friday, April 2, 2010
On the surface, credit card transactions are the same as they ever were,
requiring only a swipe and, sometimes, a signature.
But the Credit Card Accountability Responsibility and Disclosure Act of
2009, which took full effect Feb. 22, has changed the way credit card
companies interact with customers in ways Congress intends will make
using credit easier for consumers to understand.
Provisions in the law limit the circumstances under which card issuers
can raise interest rates, require consent for enrollment in overdraft
protection programs, limit overdraft charges and prohibit double-cycle
billing, where customers might be charged interest on debt that had
already been paid off, according to a White House news release and news
reports. The law also requires that payments be due at the same time
each month and severely restricts the marketing of credit cards to
adults younger than 21.
Ballooning household debt made new rules necessary, according to
Fielding Huseth, an advocate with Maryland Public Interest Research
Group, an environmental and consumer-rights organization based in
Baltimore.
He referred to statistics from the Federal Reserve Web site showing that
outstanding public revolving debt, which is mainly composed of credit
card debt, rose from $53.7 billion in January 1980 — $138 billion
adjusted for inflation — to $864.4 billion this January, the most recent
month for which data are available. However, revolving debt has been
declining since September 2008, when it peaked at $975.7 billion.
Personal responsibility is not the only issue for those mired in debt
because, before the Credit CARD Act, companies were using intentionally
deceptive billing techniques, according to Huseth, including shifting
the due date between billing cycles to trick customers into paying late,
then slapping on fees and a higher interest rate when they did, Huseth
said.
"It doesn't matter if the consumer has any aspect of the blame if the
practice is intended to be deceptive, is intended to trick consumers
into paying their balance one day late. Their deception shouldn't be
tolerated and we just think a fair economy is one where credit card
companies are acting and treating us consumers fairly," he said. "… Part
of the problem is that even if you do look at it that way [as
consumers' fault], the burden is ultimately being borne on the rest of
society, and that's not fair. When the economy did crash because banks
were acting recklessly, selling products they shouldn't, ultimately the
taxpayers had to bail it out."
MaryPIRG is particularly heartened by restrictions on rate increases and
a requirement that companies include, on credit card bills, the amount
of time required to pay off the debt if only the minimum balance each
month is paid.
"It's a good way for people to see visually what this means to them and
how much debt they're in," he said.
The American Bankers Association has released a statement criticizing
some aspects of the law. Restrictions will have the effect of reducing
the availability of personal credit and make annual fees more common,
the statement said. Also, card holders who have been responsible "will
be subsidizing those who have not" through higher interest rates across
the board assessed by companies that have lost some discretion in
raising interest rates for delinquent clients.
"Susie with her lemonade stand understands this, but at the end of the
day, for any business to be successful the money coming in has to be
higher than the money coming out. If a new government law prohibits
sources of revenue those revenues have to be made up somewhere else, by
decreasing expenses or increasing revenues," said Nessa Feddis, ABA vice
president and senior counsel. "… You have to remember the nurses'
pension fund, the 401K holders who are account holders … want a return
on their investment or they will go someplace else."
Bank of America spokeswoman Betty Riess said the bank has taken steps on
its own to help its customers understand credit and did not, as some
companies did, raise consumers' interest rates before the law came into
effect.
"… Bank of America has been focused on responding to our customers'
desire for clearer and more transparent information about their
accounts," including launching a new card with one rate for all
transactions, she said. "… Another thing we did, back in December, we
sent a notification to our 40 million consumer credit card customers
that, again, explains the impact of the CARD act. We also introduced our
‘card clarity commitment,' a one-page summary of each customer's rates,
fees and payment information."
The bank will also follow up with new card holders to answer any
questions and has launched a financial literacy Web site to help
customers find answers on their own, she said.
Promoting credit savviness is "this informal personal goal" of Laura
Bayless, "to try to educate students as much as I can about what it
means to build good credit." Bayless, who is dean of students at St.
Mary's College of Maryland, said the school has a longstanding policy
prohibiting on-campus marketing of credit cards to students to protect
them from their own inexperience.
Teenagers can be responsible consumers but many are uninformed about the
consequences of their decisions, she said. She supports the new law,
which prevents those younger than 21 from getting a credit card unless
they have an older co-signer or can demonstrate their ability to repay
the debt. It also prevents card companies from requiring a young person
to fill out a credit card application in exchange for a free T-shirt or
other gift.
"I don't think it's necessarily a bad idea not to allow 18-year-olds to
have a credit card … I think the philosophy behind it is a good idea,"
she said.
Athena Miklos, a business and economics professor at the La Plata campus
of the College of Southern Maryland, thinks the government should have
imposed even stricter regulations governing the extension of credit to
young adults because she sees her own students crippling their futures
with debt without understanding what they are doing.
At the same time, she said older adults should know better and do not
merit federal handholding in personal finance. In her analysis, the
credit crisis has been driven by undisciplined consumers spending money
they don't have.
"It feels like with the mortgage loans, people buying the McMansions all
over the place and all of that going into the derivatives, that whole
mess, everybody blames everybody but the consumer. … I'm kind of tired
of that. The consumer has to take some responsibility for it. We cannot
rely on the government taking care of us all the time. We go to school.
People can read and write in the United States," she said.
She emphasizes personal responsibility but Miklos is not fan of credit
cards. Easy access to consumer credit — and the high interest rates that
accompany it — has a corrosive effect on the economy, and "I would all
be for tearing them up and throwing them all away," she said. The ease
of swiping a piece of plastic instead of handing over cash tricks
consumers into feeling more prosperous than they are, while transaction
fees devour retailers' profits, she said.
Retailers proposed new rules to reduce the cost of accepting credit
cards but they were not included in the Credit CARD Act and are unlikely
to be included in pending federal consumer protection legislation,
according to Tom Saquella, president of the Maryland Retailers
Association.
"Every time you use a credit card the retailer has to pay anywhere from
1.5 percent to 2 percent to [the credit card company], and that adds up
to billions and billions of dollars," he said, and a retailer has very
little leeway to negotiate more favorable terms with a card company.
"… We want some ability for the retailer to negotiate [fees]. A retailer
can't be in business without accepting credit cards, [which are] about
60 percent of sales. It's very much a one-sided system," he said.
