What Are They Thinking?

The Credit CARD (Card Accountability, Responsibility, and Disclosure) Act of 2009; what a clever name! I wonder how much the guy in Congress who has the unofficial title of Bill-Namer gets paid? Whatever it is, it's not enough. Anyway, it's only a few closed-door meetings and a President's signature away from becoming a legislative reality. But this is a good thing, right? Senator Harry Reid felt pride because the Congress "stood up for consumers and stood up to abusive credit card companies". Senator John Kerry chimed in that Americans were "[getting] whacked with unfair credit card fees". So we should all thank Congress, right? Everybody wins, right?

Hardly. Nothing Congress ever does allows everybody to win. It's an impossible goal. For someone to win, another has to lose. That's the nature of the world, though there's a chunk of the population that honestly feels that nobody should ever lose. Unless of course, you're talking about the evil corporations. Of course they should lose.

Many of these provisions have me thinking: Are these really things that need to be into a law? Look, if you've ever gotten a credit card, you know you get all this verbiage that you never read. Somewhere buried in there is something that looks like this (pulled from an online Citi application, 5/19/09):

First they specify the variable rate specifications:
--Your APRs may vary each billing period.
--The purchase and balance transfer APR equals the Prime Rate plus 9.99%.
--The cash advance APR equals the Prime Rate plus 16.99% (never lower than 21.99%).
--The default APR equals the greater of (1) the Prime Rate plus up to 23.99% or (2) up to 29.99%.

Then, in the footnotes they clarify it:
How do we calculate variable rates?
For each billing period we use the Prime Rate published in The Wall Street Journal two business days before the Statement/Closing Date.
When can we change the rates, fees, and terms of your card agreement?
We will not voluntarily increase your rates and fees or change other terms of your card agreement until your card expires, typically in two years. At that time, we will review your credit history and general market conditions. If we decide to make changes after our review, you will receive advance notice and a right to opt out. If you opt out, we will close your account. You can then pay the remaining balance under the old rates, fees, and terms. Of course this paragraph does not apply to the automatic default APR and Prime Rate changes. It also does not apply to changes required by law, our regulators, or our network providers.

Does that sound unfair to you? Is it their fault that you didn't read it? I know I never read them, but I don't hold them liable for my laziness. President Obama said last week, "You should not have to worry that when you sign up for a credit card, you're signing away all your rights. You shouldn't need a magnifying glass or a law degree to read the fine print that sometimes doesn't even appear to be written in English." Excuse me? Exactly which rights were infringed by those rules? And a law degree? Is our educational system that bad that it is assumed a law degree is required to understand what I just pasted above? On second thought, don't answer that.

Let's take a look at some of the key provisions of the bill:

• Credit companies can no longer raise interest rates on existing balances until after those balances are 60 days past due.
  
  
  Why 60? It sounds so arbritrary. Why not 30? 90? 120? It's just a number, and you're not going to solve anything. You will still have people not pay. TODAY most may pay by 60 days (I don't know this; just trying to think of why they picked 60), but if the deadline is 60, then most will probably pay by 90. Then what? Just keep pushing it out? Eventually, don't we all have to just realize the cutoff is there, it's detailed in the agreement, and call it a day? You can't push it out because people don't read.


• Consumers will be notified 45 days in advance of any rate increase.
  
  
  Again - another arbritrary date.
  


• Statements will be forced to be mailed 21 days before the payment due date.
  
  
  Uh...how exactly is this supposed to help, and why is this being legislated again? Look, consumers, if you are using a credit card, you do realize that at some point you'll be required to pay the debt off, right? They're going to come knocking at around the same time every month for at least a portion of the debt. I'm not really sure how legislating that you find out so early suddenly offers the consumer more protection. This is an unnecessary clause.
  Actually, you know what? I just thought of a potentially ever-so-slightly-harmful side-effect of this. I already get my Discover statement via email around 29 days BEFORE it's due. It basically comes right after it closes for the previous month. I then promptly forget about it because, after all, it's not even due for another month. For ME, this legislation is potentially harmful. My point is that any legislation will hurt some and help others. Those that are lazy and forgetful, who don't set up reminders and stay on top of debts will be harmed because they will be notified too soon and it will fall off their radar. Those who are diligent will take the opportunity and set up the payment ahead of time, regardless of when they are notified. Net effect: NOTHING.
  


• It will be harder for companies to issue credit cards to people under 21.
  
  
  Yet another case of the government acting like parents. Look, this is and should be a business decision of the credit card companies. They probably shouldn't even hassle themselves with 18-21 year olds. They should jack up rates on them and in general make it difficult for them to obtain their product. They should consider that age group a high credit risk and treat them as such. Wait a minute - if they did that, then...[gasp]...they'd be implementing a form of age discrimination! Why isn't the government stepping in and forcing them to reduce restrictions! Oh yeah, it's because the government wants to absolve anybody, even those legally considered an adult in practically all other matters, of personal responsibility. How about a pro-active attempt to curb financial ignorance? How about an introduction of financial education into our American primary/secondary education system? Instead of accepting stupidity, why don't we work to avoid it in the first place? The government shouldn't be a parent (though they try), but it's in the country's best interest to have a financially educated public.
  


• Rates can't be increased in the first year, with two main exceptions: 1) variable interest rate increase, and 2) promotional rate period end. In line with that, all promotional periods must be at least 6 months.
  
  
  Great. Now we have the government specifying how long a sale or discount can last for a business. Imagine a government stipulation that stores be obligated to offer last week's sale prices up to 3 days after the sale ended? In effect, increasing the length of sale? That's essentially what they're doing. Why should the government come in and specify business practices? THIS IS MARKETING! They didn't lie, they didn't cheat. As a matter of fact, they didn't even have to offer a promotional period at all - they do so in order to entice customers to use their card rather than others.
  

The list goes on and on, covering gift card expirations, etc., and even going so far as to specify the date time of day deadline for bill payment! Really? The time of day??

It's not all bad, and some of these things will benefit the average consumer. Unfortunately, most of the effects of this will be negative for exactly the wrong people. If you divide borrowers into two categories, those who pay and those who don't, then those who don't pay are subject to fees, penalties, rate increases, credit problems, etc. (Yes, I realize that some(most?) who don't pay have just fallen on hard times with job loss, etc. and physically can't pay. They didn't necessarily do anything wrong at all. With this in mind, businesses can choose to have a heart and handle accordingly or be a hardliner and collect. It's a business decision; likewise it's our decision as a consumer to choose a hardliner credit card company or not.) This is a fact of life. If you do what you should and when you should do it (i.e. pay on time), then you shouldn't be unnecessarily penalized. When these rules go into effect, the credit card companies will not sit idly by and watch their profits dwindle with an, "Aw, shucks." NO. They're going to find some way to keep the revenues coming in, and if they're not allowed to "pick on" the bad payers, then they'll be forced to raise fees/rates across the board to cover the balance. This will likely reduce usage by good payers, which will cause their customer base to become lopsided toward the bad payer side. Now call me crazy, but I don't think that's good for business.

My final thought on this is simple: This is yet another case of the government stepping in where they don't belong, in the interest of "the people". When will we stop this bailout mentality that it's not OK to fail? This will have unintended side-effects, and only time will tell what those are. Do I think that the credit card companies should be restrained and should act ethically in regards to business practices? ABSOLUTELY. Do I think the government should create laws in order to control business direction? NO. I would much rather see a public effort toward the credit card companies to force them to band together and create an agency/group/board/something that would set industry standards they would all abide by. As a consumer it is our right to protect ourselves, and we shouldn't depend on the government to protect us from us.