I have been posting for years about the deceptive practices of the credit card industry. This was one of the first topics I wanted to write about when I started my blog. I have strong personal feelings against the abuse of consumers and the credit card industry has consistently been one of the most abusive.
President Obama, Congress and the Treasury Department are slowly starting to shut down the deceptive practices of credit card companies. Each has a slightly different plan in mind, but all three provide comprehensive protections.
Credit Cardholder’s Bill of Rights Act
I have been following this bill (H.R. 5244) for well over a year now. It’s sad that it’s taken so long for this bill to come to the floor. The banking lobby is very powerful and has done everything in their power to kill this bill. Amazingly, it has finally passed committee and may start debate on the floor as soon as today. The Senate is considering a similar bill, which makes it likely this will pass in some form.
The main components of this bill are:
- Protects cardholders against arbitrary interest rate increases
- Prevents cardholders who pay on time from being unfairly penalized
- Protects cardholders from due date gimmicks
- Shields cardholders from misleading terms
- Empowers cardholders to set limits on their credit
- Requires card companies to fairly credit and allocate payments
- Prohibits card companies from imposing excessive fees on cardholders
- Prevents companies from giving credit cards to people who can’t afford them
- Requires Congress to provide better oversight of the credit card industry
President Obama’s Plan
President Obama made campaign promises of credit card protections and now he is following through. Last week, he summoned representatives of the major credit card issuers to Washington. He discussed “strong and reliable protections for consumers” and provided some core principles for reform.
Reforms outlined in President Obama’s plan include:
- Banning unfair interest rate increases
- Forbiding abusive fees and penalties
- Ending late-fee traps
- Forms and statements must be printed in plain language
- No more fine print or confusing terms and conditions
- Contract terms must be accessible for comparison shopping
- Require every issuer to have a plain vanilla, simple terms credit card
- The Government will have more effective oversight and enforcement
The Treasury Department Plan
The Office of Thrift Supervision enacted the first legislation for credit card reforms and it was similar to the Bill of Rights Act. Unfortunately, the OTS gave banks until July of 2010 to comply. Banks responded promptly by raising fees and interest rates. Either they felt they could circumvent the reforms or they considered it a license to steal for another 18 months.
In the past, banks may have gotten away with such an arrogant response. But, in the current economic climate, they may have caused a backlash that brought about the reforms by Congress and the President. Either way, I applaud the reforms taking place and I’m hopeful consumers won’t be exploited for another year.
Doing what’s Right
Many people believe irresponsible consumers are solely to blame for their own credit card problems. I’m not one of them. Although consumers have been irresponsible with credit, that’s no excuse for banks to cheat them. And, it’s no excuse for the Government to allow them to be preyed upon. In my opinion, this is an example of kicking people while they’re down. It’s disgraceful and it never should have happened.
The best way to keep consumers responsible is to not extend credit they can’t afford to pay back.
Besides, these deceptive practices also harm consumers who are responsible with their credit. Delayed billing, shifting due dates and 10:00 AM cut-offs create late fees even for those who pay their bills on time. One of my credit card companies was sued for delayed processing of their mail just to create more late fees. This type of fraud generates millions of dollars for banks and goes unpunished.
The Bottom Line
Credit card companies have been allowed to use deceptive practices on consumers for far too long. Reform is way overdue and definitely welcome. One thing is crystal clear to me. Irresponsible banks are the primary cause of the financial crisis.
Consumers have also been irresponsible. Their excessive borrowing was encouraged by banks to generate higher profits. Now that it has backfired on everyone, consumers are paying a heavy price, while banks are receiving a bailout.
It’s time for banks to become accountable for their actions.
Sign on a Bank:
“We can loan you enough money to get you completely out of debt.”
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