Debt by Credit Cards

My paraphrase on Benjamin Franklin’s “Death by Taxes” reference may not be my best, but it’s appropriate for today’s blog.

Consumers recently had a victory (sic) over the credit card industry. Whereas credit card companies now arbitrarily raise your interest rate if you pay late on another credit card, obtain too many (how is this defined??) credit cards, or pay even one day past the due date on the plastic in question, the big bad credit card companies won’t be able to do this any longer because your legislators are protecting you. Credit card companies can also charge fees if you spend more than your credit limit, even though they allow this practice (spending more than your limit). Imagine if your mortgage lender changed the terms of your loan to anything other than what was stated in your promissory note – now that would be criminal. Credit card companies basically do whatever they want regarding rate changes, fees, modification of terms, etc. But not anymore! The law will be changed so that essentially:

 Payments will be applied first to charges subject to the highest balance, rather than the current method of applying payments to the lowest rate balance.
 Two cycle billing (if you thought the Rule of 78’s was a bizarre way to amortize a loan this will knock your socks off) will be eliminated.
 Providing for a reasonable time to pay – what a novel concept.
 Universal default – the practice of raising your rate for any capricious reason will be eliminated.
 Better control of over the limit fees.
 Providing for longer notices to change account terms – a 45 day requirement compared to the present 15 day notice.

Sounds great for the consumer – here’s the catch. This law will not go into effect until July 2010. Man, are our legislators looking out for us or what! Oh, that’s right; credit card companies gave 7.3 million dollars to lawmakers during the 2008 election cycle, according to the Center for Responsive Politics. Since last October, Visa spent 1.7 million dollars on lobbying, according to government lobbying registries.

A co-worker asked me who was more corrupt – big government or big business? Seems like they work hand in hand.

I get living within your means and you won’t have to worry about any of the above referenced issues. I’m not one to blame the credit card companies for constantly sending millions of annual requests for new credit cards to consumers all over the country in an effort to sell their product. I get that “stuff happens” and easy credit is a way to deal with it. Crack cocaine dealers could learn a lesson about getting their customers hooked from the credit card companies. One can always follow Nike’s advice and Just Say No! (to credit cards). All that said, how can the credit card industry continue to get away with its myriad unethical business practices?

Credit card companies are now saying that if the change in the law occurs before July 2010, then credit standards will be more difficult and the economy won’t be stimulated. Let’s take a minute to try and understand this logic – use of credit beyond one’s means will stimulate the economy. In February 2009, uncollectible credit card debt reached a 20 year high and late payments on credit cards increased to a 17 year high. Greater unemployment = more late payments and bad debt.

Call and write your legislator. Note, don’t email because the law does not require your Congressman or Senator to respond to an email; but they must respond to a snail mailed letter. If they are truly representing their constituents, ask for their assistance. July 2010 is over a year away and, you heard it here first, this law can change its form before that time and that date can be pushed back even farther into the future. If you want relief now, ask for it.

Finally, it was released yesterday that no banks will have to close as a result of the stress tests that have been performed on bank assets. Although major bank credit departments were essentially closed for a month while performing these esoteric stress tests, none of them will be forced to close based upon the hypothetical results. This project reminded me of grad school group projects; for the most part completely meaningless. Can’t wait to see the results – if they’ll ever be released.

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