Never Underestimate How Much Credit Reformers Will Accept for a Vote

Copyright © 2009 Ed Bagley

When I moved from the East Coast to the West Coast in 1973, credit card companies doing business in the State of Washington could not legally charge more than 12% interest on an account. That was because credit card interest rates were subject to the usury limits of the State of Washington; that was the law in every state.

In 1979, the U. S. Supreme Court justices that represented you and me ruled that the state of the lender, not of the borrower, had the sole power to legislate interest rate limits.

South Dakota then eliminated any usury limits, hoping to draw more businesses to its state. The credit card companies flocked to South Dakota and immediately began to increase their interest rates to what have now become unconscionable levels. Federal credit unions are currently limited to charging a maximum of 18% interest, but banks can charge whatever the market will bear.

Many banks currently charge 30% interest for certain accounts, and virtually all banks have default rates that soar to 30% when cardholders use their line of credit and then overcharge their limit, make a late payment, or miss their monthly payment. Credit card providers also have steep fines for any misstep a consumer may commit.

While no one is forcing consumers to apply for and use credit cards, credit card companies have routinely and willfully taken advantage of any consumer misfortune, such as losing their job or being hit with exorbitant hospital bills, to inflate interest rates.

The average credit card balance of many Americans is $13,000, either on one card or several cards. A 30% interest rate means the consumer has to pay more than $300 a month in interest alone without reducing the underlying $13,000 principal balance by a single cent.

The idea is to put consumers into a position where they have a legal obligation for the rest of their natural lives that they cannot possibly bring to a zero balance even if they stop using their credit card(s) and pay the interest only.

The recent legislation to help curb these abuses sounds better than it is. Yes, there are some restrictions but here is what the bill does not do:

It does not cap interest rates on credit cards, it just slows down the time when the rates can be implemented. Companies will still be able to charge interest rates of 30%, 40%, 50% or 100%, whatever the market will bear.

It does not explicitly cap credit card fees. Are your surprised? Don't be.

It does not take effect immediately, giving credit providers in many cases 9 months to raise rates and fees on current accounts. Do you really think they will not do so?

It does not limit interchange fees charged to businesses for credit card processing; these fees are passed on to the consumer.

In other words, the bill does not attempt to restrict the most important issues, such as capping the interest rates and fees.

It also does not prevent issuers from finding new fees to boost revenue. Use your card to withdraw money at another bank's ATM machine, and your credit card provider as well as the bank in question charges a fee. Look for these fees to rise dramatically. So how ridiculous can this get? How about cameras that record if you even look at an ATM machine but do not use it, then you are charged a fee for just thinking about using the machine.

While some regulation of credit card provider abuse is welcome, this current bill is more smoke and mirrors than substantive legislation. Why? Heck, I thought you would never ask.

Here's why: Credit card providers spread a lot of money around to get a majority of your congressmen to craft a bill that was more favorable to the credit card company than the consumer. Some people call this lobbying; others call it a convenient pay-for-vote system that continues to enrich congressmen and credit card companies at your expense.