Comment on Proposed Changes to Regulation AA: Unfair or Deceptive Acts or Practices

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Regulation AA: Credit Card ProposalsI’m a huge fan of credit cards and I’ve never been in credit card debt before. I’ve been fortunate enough to learn the dangers of easy credit and was never seduced by its siren song, or her underhanded tactics like double cycle billing. The latest saga involving credit cards is debate in Washington over the proposed consumer protection rules offered by the Federal Reserve Board under an update to Regulation AA (Federal Trade Commission Act) — Unfair or Deceptive Acts or Practices.

Would you like to contribute? Here’s the press release discussing the proposals, simply scroll down to Proposals for Comment and click on Submit comment underneath Regulation AA.

My thoughts:

Freezing Interest Rates

One of the proposals is prohibiting banks from increase rates on pre-existing credit card balances. At first glance, this makes total sense. When you sign on the dotted line for a mortgage, you are aware of how the interest rate will behave. On a 30-year fixed mortgage, it will never change. On a 5/1 adjustable rate mortgage, it will be set for five years, then change every year after that. While in the last few years this was abused, in principle is makes total sense. You know what you’re getting into. With credit cards, the rate is always variable and can always change. However, you accept that when you apply for and begin using the card.

That being said, I do think that credit cards should be adjusted to reflect the way it’s actually being used and that requires that rates be locked at the time it is being spent. The consequence of this is that all interest rates will rise because it reflects a greater risk assumed by the credit card company and credit cards will be harder to get. You provide no proof of income when you apply for a credit card, perhaps that will change.

Application of Payments

Consumers taking advantage of 0% for life offers recognize this little line item, credit card companies apply payments to the lowest interest rate first. For example, recent 0% for life offers usually require two or three purchases a billing cycle. The cost of those purchases is at the prevailing rate, usually much much higher, and payments are applied to the 0% offer.

Consumers should be allowed to pay down whatever balance they want, not be forced to pay the lower offer. In all cases, this will be the amounts with the highest interest rate. Don’t listen to Dave Ramsey, you want to pay the higher interest rates first, not the ones with the smallest balances.

Double Cycle Billing

This is tactic is just underhanded. If you’re an impartial observer, you can understand variable interest rates because credit card companies put it plainly in their agreements. Double cycle billing? Give me a break. Double cycle billing is when they take the average of your two previous bills and charge interest on that. I don’t even know why this was even acceptable in the first place.


Obviously, the banks don’t like it:

“We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards,” President and CEO Edward Yingling [of the American Bankers Association] said in a statement.

I don’t agree that they go to far, I think they’re great proposals, but I do agree that it will result in less competition, higher prices, fewer choices, and reduced access but that’s exactly what we need. We don’t need credit card offers piling up in our mailboxes, we don’t need the average family credit debt to be around $10k, and we honestly will survive if there are fewer credit card companies.

Weigh in on proposed credit card laws [CNN Money]

(Photo: thetruthabout)

{ 5 comments, please add your thoughts now! }

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5 Responses to “Comment on Proposed Changes to Regulation AA: Unfair or Deceptive Acts or Practices”

  1. CK says:

    I don’t like it.

    If I want to enter into a contract with another party I don’t want the government telling me what the terms can or can’t be.

    When you sign up for a credit card you are signing up for a contract. If you don’t read or understand the terms it’s not the credit card companies fault.

    If you haven’t heard by the time you turn 18 that credit cards are a dangerous instrument to the undisciplined proceed at your own peril.

    “I think they’re great proposals, but I do agree that it will result in less competition, higher prices, fewer choices, and reduced access but that’s exactly what we need.”

    Jim have you had a stroke? This sentence can’t be true.

  2. jim says:

    Hahaha, no, and no one hit me over the head. I don’t like government regulation any more than you but it’s obvious that too many American consumers can’t handle credit responsibly. It’s gotten so ridiculous that it’s affected the financial well being of everyone else.

    An example is fuel prices, which affects everyone. They’re as high as they are because the value of the dollar has fallen tremendously recently. The dollar tanking is the result of the Fed slashing interest rates, which they did in response to an “economic slowdown.” The economic slowdown is in part a correction to the economic boom fueled by easy credit and borrowing against home values that skyrocketed during the housing boom. (taking that further, home values skyrocketed because lending rules relaxed and anyone could get a house with no money down, but that’s going back farther than the point I wanted to emphasize)

    Easy credit and loose lending standards is the cause of our current headaches. Credit cards are a part of that and they need to be addressed. Part of that is by making it less profitable, at least through underhanded tactics, for credit cards to target people who they shouldn’t be lending to in the first place.

    That and credit cards like to send updated microprint “privacy policies” that also include BS concepts like double cycle billing. I mean seriously… I accept changing interest rates as your risk profile changes, that’s been around forever and the rate is clearly marked as variable. Double cycle billing is just greedy profiteering BS.

  3. Jadin says:

    Actually I welcome a little government regulation. I think credit card practices have become usurious and a result of our government turning its back on its responsibilities to protect its citizens from among other things, corporate greed. Amending these regulations are actually a return to requiring fair business practices. I just hope other businesses have similar scrutiny.
    This is actually a huge deal, as it was the credit card industry which drove the dismantling of our bankruptcy laws (guess why), and their lobbyists have have extraordinary power in Washington.
    I’d suggest looking up the definition of usury and our founding fathers’ historic position on it.

  4. CK says:

    I’m not sure where in the constitution it states we need to be protected from corporate greed. Maybe you could site something for me.

    If you feel you’re too dumb to handle your own finances maybe you should become a ward of the state. Maybe you just feel others are too dumb to handle their own finances so we should pass laws to protect them from themselves. Maybe we should also sterilize folks who aren’t smart enough to be parents, there by savings themselves and their future children from their stupidity.

    Please leave my money and my choices alone. If I injure myself who are you to care.

    And guess what? No one is forced to have a credit card plenty survive without them.

    \ˈyü-zhə-rē, ˈyüzh-rē\
    Function: noun
    Inflected Form(s): plural usu·ries
    Etymology: Middle English usurie, from Anglo-French, from Medieval Latin usuria, alteration of Latin usura, from usus, past participle of uti to use
    Date: 14th century
    1: interest
    2: the lending of money with an interest charge for its use; especially : the lending of money at exorbitant interest rates
    3: an unconscionable or exorbitant rate or amount of interest; specifically : interest in excess of a legal rate charged to a borrower for the use of money

  5. Curtis says:

    Thing is, most of the fees that they want to eliminate are avoidable in the first place. Example:

    Any-rate based fee/finance charge — can be avoided by paying off the complete balance each month

    Overdraft/insufficient funds fees — can be avoided by not spending more than you have in your bank account

    …and so on…

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