New Credit Card Rules; FDIC Borrowing Limit Upped

With stiff objections coming from Republicans, a Senate Panel Approves Bill Limiting Credit-Card Rates.

A Senate panel approved new restrictions on credit-card interest rates that are broader than those adopted by the Federal Reserve in December, brushing aside objections from Republicans and the banking industry.

Senate Banking Committee Chairman Christopher Dodd said the measure was needed to protect consumers from having their interest rates raised on previous balances, unless certain conditions are met. The legislation would prevent credit-card companies from unilateral changes to the terms of an agreement.

The bill, known as the Credit Card Accountability, Responsibility and Disclosure Act, also would require the signature of a parent for a borrower under age 21, unless there’s proof of independent income or completion of a financial education course. Universities that forge marketing deals with card companies would be subject to the rule.

“The list of troubling credit-card practices is as lengthy as it is disturbing,” said Dodd, a Connecticut Democrat. The measure passed on a 12-11 vote, with all the panel’s Republicans opposing it.

The legislation also would require card companies to disclose how long it would take to pay off a balance when making a minimum monthly payment and require statements to be mailed at least 21 days before the payment due date, up from 14 days.

It would also prohibit banks from charging interest on fees, such as those imposed for late payments or exceeding credit limits.

Consumers are falling behind on credit-card payments as U.S. unemployment reached 8.1 percent in February, the highest level in more than a quarter century.

Almost all of the cards studied -- 93 percent -- allowed the lending company to raise any interest rate at any time. Also, 87 percent of the cards allowed automatic penalty interest averaging 27.99 percent on all balances even if the account was less than 30 days past due, Pew said in a statement today.

When it comes to over limit fees, there should not be any. Banks approve the transaction so should be comfortable with it. If they do not want to authorize the amount it is simple enough to reject the transaction.

I also object to self-modifying contracts. Sadly 93% of cards issued allow rate hikes at any time for any reason upon notice. Moreover, sending a notice to someone in fine print that no one can understand even if they manage to read it hardly constitutes "notice" in my book.

Also irritating is the practice of banks mailing out statements a mere 14 days before payment is due such that anyone on two week's vacation is bound to be late, triggering late fees and interest. Another thing banks do is require payment by 10:00AM when the mail for the day does not come in until Noon. This effectively cheats customers out of one of the days.

The credit card industry is getting what it deserves for their practices, even though a case can be made that such things ought to be left to the "free market" to solve. Then again self-modifying contracts under such terms hardly seems to be a "free market construct".

Moreover, the reason people can get credit lines way bigger than they deserve stems from the Bankruptcy Reform Act of 2005 whose sole purpose was to make people debt slaves forever. That act is now blowing up, just as I predicted it would.

Geithner's Heist America Plan

In a galling move that has nothing to do with credit card reform at all, the Senate slipped in a provision to allow the "FDIC to borrow up to $100 billion from the U.S. Treasury, an increase from $30 billion now. The FDIC has said the additional borrowing authority may reduce a special one-time fee imposed on banks to replenish the deposit insurance program."

This tactic has nothing to do with replenishing deposit insurance, but rather is a move to cater to more bank implosions and to provide a cushion for Geithner's Heist America Plan (GHAP). Please see Geithner's Plan Can Succeed for details about Heist America.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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