Is the Credit Cardholder's Bill of Rights Good for You?

The Credit Cardholder's Bill of Rights Act recently cleared the House Financial Services Committee last week and is garnering support from both sides of the aisle. This bill is designed to protect consumers from “unfair and deceptive” practices that the credit card issuers are engaging in like, universal default, two cycle billing and raising rates on existing balances, even for who pay on-time. The usual quid pro quo for the banking industry is to take heed of the saber rattling from Washington and “self regulate” before congress or the Fed has to step in.

The Fed addressed this issue in May basically agreeing that some credit card practices were unfair and need to be addressed. In that time, the card issuers have done very little to correct this situation other than making their warning labels more prominent. Some theorize that this is because credit card issuers are reeling from mortgage right-downs and are unable, or unwilling, to take the one-two punch. There is little doubt that by making these changes the credit card issuers will lose money; the latest independent study estimates 10 billion industry-wide.

As a result of these changes, most credit card issuers will raise their interest rates across the board and lower credit limits. Opponents argue that by lowering credit limits and raising interest rates they will collectively lower credit scores for the majority of card holders. Having higher balance to limit ratios and lower credit scores will ultimately limit the consumer’s access to other traditional credit sources like home equity loans and mortgages.

Many in congress realize that this is a bitter pill for consumers to swallow, but a necessary one. At the root of this bill, consumer benefits aside, is the consensus among legislators that the spiraling credit card debt and climbing default rates must be addressed before we find ourselves in another economic melt-down. A bill that forces credit card companies to “play nice” offers dual benefit that can easily cross party lines. This bill, or a watered down version of it, is expected to be passed, but not this year.

Even though legislators are eager to throw in their two cents on this juicy issue, they are basically tabling the issue and using it as campaign fodder. The debate on this issue should resume once the elections are over. The reason being, this issue simply isn’t a deciding factor for most voters. Candidates are focusing on Issues that center on the war and rising energy prices. However, throwing in a couple of statements about the greedy mortgage companies and the evil credit card issuers makes for a great stump speech.

Meanwhile, back in Washington, banking lobbyists are licking their lips at the prospect of the fresh-meat that always follow an election. You can expect a fierce battle on Capitol Hill; the banking industry will not go gentle into that good night. At Direct Banc, we predict that if the bill passes, it will closely mirror the Fed’s lead and fall into obscurity soon after.

Just remember, credit cards, by their own definition, have variable rates and obnoxious fees; responsible credit card use is your only defense against them. If you carry a low balance, or pay your balance off each month, credit card “gotchas” really can’t harm you. If credit card issuers are forced into a corner with over-reaching regulations, they will simply raise their rates. This will force all card holders to pay higher rates in order to absorb everyone else’s late fees.