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Your Take: CARD Act Credit Card Legislation

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The buzz in the personal finance blogosphere lately has been about the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. The House passed their version last month, the Senate passed their version this week, and they’ve already reconciled it. I bet by the time this post is published, President Obama will probably be putting pen to paper and signing it into law.

What do you think? Overall I’m happy because this will save a lot of people money. For example, you have to opt into overdrafting. Unless you say so, banks now have to reject payment requests if it exceeds your limit or balance. Payments on debts must be applied to the higher interest debt first if you have a balance that has several different rates. Rates can’t be increased without a 45 day notice. There are some gift card rules in there too, such as no expiration dates of less than five years and a full disclosure of fees. Overall, it’s a good bill.

There are two things that concern me. The first is the seeming arbitrary rule that no one under 21 can have a card unless a parent, legal guardian, or spouse is the primary cardholder. If the student has income, they can submit proof and request an exception. The reason I don’t like this rule is because age is not an indicator of credit worthiness. Just look at the people who are behind on mortgages (the mortgages that you, as a tax payer, now partially own), how old are they? The reality is that we’re in a situation where the government has changed the rules of the game and continues to change rules to best meet their needs. I don’t mind rules when companies are playing unfair, but this rule seems discriminatory… I bet someone sues over this very soon.

The second thing that concerns me is how credit card rewards will change. As a advantageous credit card user, I know my rewards are subsidized by transaction fees and other, less advantageous credit card users. These rules are going to cut into the bottom line of many credit card companies and their programs will have to be adjusted for this new reality. I hope they don’t cut into them too much!

What are your concerns or thoughts about this bill?

(Photo: andresrueda)

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37 Responses to “Your Take: CARD Act Credit Card Legislation”

  1. Miranda says:

    Those are my main issues with the bill as well. I think the age requirement is ridiculous — it’s another case (like alcohol consumption) of being old enough to die for your country and enter into all sorts of legal stuff, but you can’t do THIS? When you’re an ADULT, your an adult.

    I also wonder how many issuers jack up their interest rates between now and implementation, just because they still can. I think that overall it’s a nice bill, but some of the unintended consequences are going to be a bummer.

    • Jim says:

      I think all of them will increase their rates. Companies aren’t mean spirited, they’re profit focused. Whenever you introduce laws that limit what they can do, they’ll simply implement those changes where they can. If you can’t increase the interest rate on someone for 45 days, they’ll start with a higher interest rate.

  2. Chuck says:

    Capital One has already increased my rate from 14.9% to 17.9%. (Doesn’t matter, I never pay interest anyway.) Seems like they were afraid they won’t be able to do it later. The best part of this is applying payments to the highest rate balance. Of course this probably means low rate balance transfers are over for good.

  3. Gene says:

    It’s Gene here, from kitchentablemomics.com. I’m a full balance payer and convenience user, and the most inconvenient potential change I see is elimination of the grace period. That holds no terror because my bank gives me free debit cards and checks.

    Also, I don’t think the card cos will jack us “deadbeats’ around as much as some predict. The 2 to 3 pct interchange fees that card cos collect each time we swipe is steady money they don’t want to shut off.

  4. Kelly says:

    “If the student has income, they can submit proof and request an exception.”

    I don’t thing ANYONE should be able to get a credit card if they can’t prove that they can pay for it. Just like banks had no business giving mortgages to people who couldn’t afford them, the credit companies have no business giving cards to people with no income.

  5. dilbert69 says:

    I’m mainly against it. I think the market does an adequate job of regulating credit card rates and terms. The only part I think is a good idea is banning retroactive rate increases. After all, if I buy something at a 10% interest rate, and then the rate goes to 20%, it’s too late for me to “unbuy” it. Of course, I don’t carry debt, so I don’t really care what my interest rate is.

  6. eric says:

    This is purely a vibe but I don’t think rewards programs are going to go extinct anytime soon. The credit industry is super competitive as it is. If anything, I think they may be raising merchant fees to recuperate those losses, which could mean raised prices in the future.

    As for the age thing, I’m sure you and I are in the minority Jim. I seriously hate it but a lot of people seem to think it’s a good idea.

  7. Splash says:

    The new rules are about two things:

    1) Appeasing helicopter parents.

    2) Giving an excuse for the big players in the financial industry to squeeze out the smaller ones. The net effect will be fewer consumer credit options.

    Keep in mind that, as one member of congress put it, the financial industry “owns the place”. If the new rules are not what they wanted, this new legislation would not have happened.

  8. tmartin says:

    Jim, I heard something about how it’s possible that some credit card companies may begin to charge interest from the moment of purchase instead of at the end of your statement period. This way they make money off of everyone – even those of us that pay our full balance each month. Have you heard anything about this?

    • Jim says:

      I suppose anything is possible and that’s one change that wouldn’t take too much to change, since people carrying a balance don’t get a grace period (they get charged interest from the moment of purchase).

    • Fairy Dust says:

      now *that* bothers me – as a pay-in-full user, I’d rather give up rewards than have to pay interest on everything from the moment I charge it. I think i’d seriously consider giving up credit cards if that goes into play. And maybe that’d be alright :)

      • Jim says:

        If grace periods were to go away, I wouldn’t use a credit card anymore because I could just use a debit card with rewards.

        • Mariette says:

          This was what I had heard – that pay in full customers would be charged in some method, either higher yearly fees, rescinded rewards or the no grace period interest, in order to make up for bad credit risks. I think merchant credit cards (Macy’s, TJ Maxx, etc.) will become more popular and benefit if they don’t penalize the full balance payers the way the majors may do. Major cc cos will lose out on the merchant fees by our not using them – downside for me – alot of plastic to carry around but it will definitely put a cork in my “buy/return” practices -

  9. Concerned says:

    YOu can vote and be graduated from high school (age 18) and legally an adult, but not be able to get a credit card on your own? Doesn’t seem right! I agree with your two concerns.

  10. Suzanne says:

    I am thrilled that payments will go to the higher interest rate first. I have had one account that has a balance under $100 that has gone on and on and on because the other balance is 1.99% for life.
    I agree with you that someone will probably sue over the under 21 portion.
    As far as rewards go, I have not participated. I have never charged every day expenses on a credit card and probably never will.
    Personally, I would like to see credit given out like mortgages are – based on your debt to income ratio and ability to pay – I think this would help people who cannot manage credit keep from getting in over their heads. Those of us who do well, would not have a problem – yes?

    • Jim says:

      While I think the CC’s tactic of applying it to the higher balance first was shady, it did allow for these 0% for life and 1.99% for life offers. Without the application of payments to lower interest first, those deals wouldn’t have existed.

  11. Rob says:

    I was kind of hoping they’d do something about variable due dates. I think a static due date would be nice (not the 29th-31st for obvious reasons). Given that I pay my balance in full every month, this is the issue that’s most important to me.

    Due to the fees merchants must pay on every CC transaction, CC companies make a killing off those of us that pay our balance in full every month. In my opinion, it would be bad business for CC companies to do anything that might minimize CC use. That’s why I don’t see them eliminating grace periods.

  12. freeby50 says:

    I think most of the changes are good and will benefit consumers. Some of the changes are long overdue.

    The 21 age thing is not that bad IMO. You cna still get a card if you can prove you can pay it. So its not really a big deal. They shouldn’t have been giving cards to teenagers with no income in the first place.

    I don’t think the changes will hurt rewards. If they start reducing rewards, cutting grace period or adding fees to people like me who use rewards cards and pay off the balance then they’ll just lose my business.

  13. Guy in San Antonio says:

    In my job, I work on the back end of finding the least expensive way to get credit card payments from our customers processed at the lowest discount rate possible. That rate is composed of the “interchange rate” which is set in stone by Mastercard / Visa plus some margin which can be as low as .20% or so.

    I think what will happen is you will see that “interchange rate” will increase by 1% or so, effectively increasing the price of everything you buy no matter what payment method you use. Retailers have to price their product based on the assumption that customers are going to pay with a credit card

  14. Cap says:

    I have pretty mixed feeling about the helicopter parenting provision on protection for ‘younger’ consumers. If 18-21 aren’t ‘adults’ in the sense of this law, then you may as well move the legal adult age for pretty much everything to 21, including right to vote.

    • Splendor says:

      I agree. If you’re old enough to vote and volunteer for the Army, you’re old enough to get a credit card.

    • Caitlin says:

      I agree too. If you keep bubble-wrapping the world to “protect” young adults instead of actually teaching them about money, debt, how credit cards work, etc, then at age 21 those people will be just uneducated about those things as they were at age 18, which does nothing to solve the actual problem.

  15. thomas says:

    I’d actually be for the voting age to be 21, but that’s another topic. If you can’t buy alcohol till 21, what makes this any different?

    Regardless of this bill, it still hasn’t addressed the real problem – IRRESPONSIBLE PEOPLE!!

    How typical to blame companies for individual decision making. You signed up for the card, you are responsible for reading the T&C’s.

  16. Hogan says:

    I think the legislation is a good thing. The more people use cards irresponsibly the higher the prices go up for the responsible people. So basically poor savers boost their lifestyle and the business class makes money while the responsible people in the middle pay higher prices. It mirrors the subprime housing crisis in California. Teachers, firemen, police officers in California could not afford to buy a house or were smart enough to know that the rising prices were just way too expensive for their salary, while the reckless people got to boost their lifestyle by bidding up house prices and the business class made money hand over fist. While making money is not a bad thing hopefully prices will settle at a more realistic place for everyone.

  17. Shirley says:

    We use our Discover card for everything we can, including the monthly household bills, specifically for the cashback reward which we have credited back to our account. We pay in full every month.

    Twenty dollars a months may seem small, but it’s twenty dollars times twelve that makes this practical for us. When a local grocery store began accepting Discover Novus, we switched our shopping to them. When a local restaurant dropped Discover, we went to another restauant instead.

    I don’t think we are alone in this practice, so I don’t think CCs will drop rewards entirely.

  18. Sonny says:

    When is it going to be enough for the “hardworking, concientous” middle class American to stop footing the bill for everyone that is irresponsible. I am tired of paying my credit card balance off each month, only to find now it looks like I am either going to have to pay an annual fee or instant interest. I am sick of having to bail out lenders that made loans to people who could not afford them and now we have to take care of them! I am sick of working and paying my insurance premiums only to find hospitals write off bad debt from people that either have no insurance or simply can’t pay. Why do we, the American taxpayer, have to bail out the auto industry that for years has done nothing to better position itself, either by manufacturing better automobiles or building cars that did more to reduce our dependancy on forrign oil. Why do we have to continually get jerked arouind by the oil industry when reserves are at a twenty year high and consumption is at a ten year low? It sometimes makes you want to just “chuck” it all and get bailed out by somebody else!

  19. Diana says:

    I don’t understand the difference in 18 or 21, I wasn’t any smarter at either age!

    At 18 I can live alone, legally get married, have children, serve in the military, incure thousands in debt for student loans; but I can’t have a drink to drown out all those choices or a credit card to purchase said drink (not that you should)?

    How did things get so silly?

  20. Bri says:

    As a very responsible 20 year old I also agree the age requirement is ridiculous. How do we ever expect kids to grow up and take responsibility for themselves if they keep making it harder and harder for us to be independent with age restrictions. Despite the fact that I have my life much more together than most people twice my age, I still can’t book a cruise, rent a car, stay at some hotels, or make fantastic meals that require wine reduction sauces. This will just further the “age=responsibility” mentality, which has no merit. Hopefully, the credit card companies will quickly figure out that charging the credit responsible annual fees and stripping benefits will hurt them. I will take my business where the best deal is, and I think everyone else that takes advantage of rewards programs will do the same.

    In short, this bill further caters to helping out the irresponsible people that can’t manage their money. It’s thanks to all of these people that the economy has tanked, and now the government steps up to save them from their own stupidity with this bill.

  21. Splendor says:

    I’m happy with the bill, with two exceptions. First, I think the 21 year age limit is unfair to responsible young adults. Second, I wish it capped interest rates.

  22. Rebecca De Santis says:

    It is great, only if it can start this year, not next year in 2010.

  23. ramavich says:

    I always pay my cc bills in full. I refuse to pay either an annual fee or immediate interest (ie, no grace period). What debit cards offer rewards Jim?

  24. There are lots of responsible 18 year olds and lots of irresponsible 40 year olds, so the age thing is a bit suspect. However, college student use of credit cards is a cause for concern. Balances are high, students aren’t paying them off, many students have multiple cards, and they are incurring serious debt. (Sound like the rest of American society?) Sallie Mae just released an interesting report on college students and credit cards. College students also say that they wish they had gotten more financial information and they would like to get more info from their parents. So maybe the requirement to have parents sign will open some needed dialogue. It might even cause some of the parents to think about how they use credit cards.

  25. The free market needs to be free. We don’t need government trying to protect us from ourselves or those we do business with, whether we’re 18, 21 or 51. What we need is free choice for consumers and providers of goods and services.

    Regulating credit card companies offers a few near term benefits, but we really end up suffering because it eliminate opportunities in the marketplace for enterprising credit card companies to emerge and differentiate themselves from the “big bad wolf” competitors out there.

    Many of us have moved to no annual fees, zero interest balance transfers, patronage rewards, and low interest rate cards. With government encouraged to be involved in taming the marketplace and leveling the playing field, it only hurts us in the long run because entrepreneurs in the world of credit cards won’t be allowed to offer these type of incentives. They’ll eventually be seen by Washington do-gooders as unfairly manipulating credit card consumers who need government help and protection.

    The camel has been allowed to get his nose under the edge of the tent. It won’t be long until it’s running amok inside. Don’t worry though, the regulation is from the government and they’re always here to help.

    Clair


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