Pros & Cons Of Credit Card Reform Act of 2009

It’s already old news - on Tuesday, May 19, the U.S. House of Representatives overwhelmingly passed the Credit Card Reform Act of 2009. The bill now goes to the U.S. Senate where it is expected to pass in short order so that President Obama can sign it into law before Memorial Day.

Washington Wire has succinctly summarized the bill passed by the House:

 
Quite frankly, these changes don’t strike me as having as far-reaching consequences as consumers may expect them to have. My analysis follows.

RE: RAISING RATES ON EXISTING BALANCES

While rates cannot be raised on an account unless it is at least 60 days delinquent after the bill becomes law, rates can still be raised. Plus there appears to be no cap on them.  

In addition, the issue may be moot for most credit cardholders. Credit card companies have been sending out tens of millions of notices of rate increases over the last five months, in anticipation of this provision. So most credit cardholder’s rates are likely to be fairly high by the time the bill becomes law.

Yet, after it becomes law, this provision should prevent the hell experienced by people who inadvertently miss a payment by a few days and then see their rates doubled.

RE: PAYMENTS - BIGGEST POSITIVE CHANGE 

The biggest positive change to consumers is in the “payments” provision. Right now your minimum payment - and anything you pay over the minimum - is applied to the balance on your account that carries the lowest interest rate.

If, for example, you have a 3% promotional rate on purchases and a 21% rate on cash advances, every purchase you charge will have to be paid off before you can pay off any cash advance you make.

The new provision will reverse that practice, which should, in theory, make it easier for consumers to get out of debt.

RE: TEASER RATES

The problem of “teaser rates” not matching actual rates is something that occurs due to miscommunication and error during conversations between customers and agents, as opposed to a deliberate desire to mislead.

Miscommunication and errors have increased as a result of the outsourcing of customer service to overseas call centers that employ agents whose first language is not English. (For more on this phenomenon, read my article, Could You Spell That? - Spelling Challenges For Credit Card Agents.)

Since this provision is not going to change the infrastructure for handling customer service, the cause of this problem will continue.  

Agents will still make mistakes; some people will still think they signed up for one set of terms and find out they signed up for another set. So how will this will be resolved? Will consumers just be “believed” when they call up and say, “I thought I was getting 2% for a year, not 7% for six months?”

Unless there is a policy that “the consumer is always right” - or fines and a policing unit or an ombudsman department attached to this provision - I see business as usual.  Until credit card companies get the message that they need to move their outsourced call centers back home for improved communications between customers and agents, I see this provision as having no real effect and being largely unenforceable.

RE: MAILING BILLS

Excuse me? The requirement NOW for my credit card companies is that they are to mail my bills to me 21 days before each payment is due. That’s in my contracts! Yet bills still sometimes arrive after the bill is due. (That’s why I pay them early and on-line.) So how is this restatement of what is supposed to already be a binding agreement going to change anything?

For instance, how is this going to be policed? Is the U.S. postal office now going to date stamp the tens of millions of credit card bills going out, instead of processing them as bulk mail so that the consumer has proof of the mailing date?

I don’t think so. So I see this as another paper tiger - a mere affirmation of what already is supposed to be policy, with the result that there will be no noticeable change for most credit cardholders.

Perhaps the real purpose is to put a limit on the current trend by credit card companies to make billing cycles shorter and shorter.  

RE: OVER LIMIT FEES

Now HERE is a provision that appears to have meat on it. No more over limit charges for anyone! Fantastic! (After all, who in his or her right mind would agree to them?)

Just watch out for the fine print. I make a prediction here: that every contract issued is going to include the right for a credit card company to charge over limit fees, and that it will wind up being very easy for the consumer to miss this provision in a contract.

After all, it will be yet just another paragraph in the long litany of legalese that a credit card rep reads out to the consumer (who, likely, isn’t listening that carefully) when the rep is offering a credit card contract. (See my article on overseas call centers and miscommunication, “Would You Repeat That?” -  5 Communication Challenges For Credit Card Agents, to understand the situation more completely.)

I’m betting it will become - as in most things with credit card companies - THE RESPONSIBILITY OF THE CONSUMER TO KNOW ENOUGH TO ASK if this is a provision in the contract being discussed.

Again, there is an abundance of room for error. So how will it be enforced, and what recourse will the consumer have in the case of “misunderstandings?”

RE: MINORS

While this may appear to be legislation that protects minors from being ensnared in debt before they understand how it works, it may actually work against those kids who do not have responsible adults - or, worse, have abusive parents - and need credit to try and strike out on their own before the age of 21. I see this as more of a protection for the credit card company, and as a way to insure repayment.

It will remain to be seen if you will still be able to get a pre-teen a card on your account, or put a younger child on a multi-card account as a strategy to build a strong credit history for his or her future. There have been rumblings for the last year about ending that practice. This provision might be what does it.

RE: DISCLOSURE

I’m also not impressed by the 45-day requirement for notification of a change in terms.

Yes, it’s a month more than the 15 lousy days we have now, but given the realities of the time it takes to get the notice, read the notice, digest the notice, call to clarify the notice, and figure out a strategy - especially in consideration of how hectic most people’s lives are - it might leave you 30 days to find a way to pay down or refinance your debt which - when you’re scrambling - isn’t that long. So sixty days notice would have been my preference.

RE: FEES

Here’s another great provision. Credit card issuers cannot charge their customers for accepting payments by mail, phone, or electronic transfer - EXCEPT- and here’s the window of opportunity - ”for expedited service”.

Talk to “Agent 0016″ and you’ll find out that far too many people wait until the last day before a bill is due to pay it. Then they call in.

So here’s my prediction: expect that last minute help to fall under the category of “expedited service” and don’t be surprised to see new internal rules roll out. You may discover that, when you pay your bill within 24 hours of it being due, facilitating acceptance of your payment so it registers as being “on time” may require a special service that will, of course, necessitate a special fee.

Either that or credit card companies are going to stop accepting payments via phone and require credit cardholders to pay either by mail or on-line (with no human support.) 

Again, there have been rumblings about getting rid of phone payments anyway, so this may be something that credit card companies actually want.

RE: GIFT CARDS

Frankly, I don’t know enough about problems with gift cards to comment on this one. I do know that it’s all too easy to put a gift card aside and forget about it until it expires. Perhaps, in a future post, “Agent 0016″ will help shed some light on how much this provision is likely to help consumers.

SUMMARY

Should the Credit Card Reform Act of 2009 be passed as it is, this bill will deliver some help to consumers, however, it seems fairly clear that the credit card industry has had major input into this legislation or - for one thing - it would have gone into effect immediately so the rate hikes that consumers are being hit with right and left would stop. As it is, it’s still a free-for-all for the credit card companies in terms of raising rates.

Since I’m in favor of profit, not usury, I would have liked to see an interest rate cap - or a rollback on recent interest rate hikes - however, neither is in the mix. This despite the fact that the prime rate is - what? Half a percent? Bottom line, it still is up to consumers to become better informed about credit cards and managing debt. This legislation will not save them from ignorance about what they don’t know about yet should know about for their own good.

So, as far as I can see, the relevance and need for our book, Money Saving Credit Card Secrets, will not be diminished by the passage of this bill.

Since past is inevitably prologue, we know that credit card companies have had their lawyers figuring out how to create exceptions for every limit this bill places upon them.

Plus - and bite my tongue for saying it - given the number of credit card lobbyists in Washington, the legislative pendulum could easily swing back in the future.

So individual education and empowerment is the only real answer - and especially of our youth. Our kids simply must be taught about how credit card companies work, and how to handle credit so it does not turn into debt that enslaves them.