Do the New Credit CARD Rules Help or Hurt?

The much-lauded Credit Card Accountability, Responsibility and Disclosure (CARD) Act finally went into effect this week, after months of unethical shenanigans by the credit card industry as they tried to squeeze as much money out of consumers as possible. Signed by Obama last May, the law's implementation was put off until February in order to give the credit card companies and banks time to "adjust". What they did, of course, was play havoc with customer's money, jacking up fees, applying them retroactively, and instituting interest rates close to 1000%.

Now, though, the party is over. Or is it? Closer inspection of the law's provisions certainly seem protective of consumers: Caps on certain fees, 45-day notice on interest rate increases (which took effect last summer), and the scoop on exactly how long it will take to pay off your debt if you pay the minimum each month. These things are all good, especially the part where the print must be readable without the use of an electron microscope. The effect on consumers, though, is not quite so positive.

Eileen AJ Connelly, a reporter for the AP, writes that banks and other lenders that issue credit cards are already finding ways around the new law. Since the newly enacted restrictions will reduce their profit margins by half within three years (according to FICO), lenders have responded by creating new fees, re-instituting annual fees (almost unheard-of for the last few years) and cutting lines of credit. If you find yourself affected by these changes, consider yourself lucky: Many accounts were simply closed by credit card companies in order to reduce their risk. The account holders had no say in the matter.

Although the new 6-week notice for interest rate hikes is a good thing, there is no cap on high those rates can climb. In addition, many cards that previously had fixed interest rates have now, unilaterally by the lenders, been changed to variable rates. Since the only direction at this point for rates to go is "up", this does not bode well for card holders. Overall, credit cards will be much less accessible for everyone, particularly those with lower incomes.

Card issuers argue that not only does the new law decrease their profits, but the recession also took its toll on their bottom lines. According to the Nilson Report, lenders saw their earnings plunge from $19 billion in 2007 to $6.32 the next year. Of course, that's still a hefty profit, and, since much of the decrease was due to unemployed people defaulting, I guess they didn't suffer as much as others did. However, since the laws are written for the big guys and not everyman, their suffering is worth more. A reasonable person might expect that reduced profits during economic downturns are just a cost of doing business in the credit industry, but never mind. That yardstick only applies to small businesses, apparently. Therefore, they are able to make up their profits in new ways unavailable to the rest of us. Score another one for the big boys.

Banks Stick it to Consumers Before CARD Rules Take Effect

If you are a credit card holder, you probably already know that on February 22, new rules governing these accounts goes into effect. Titled "The Credit Card Accountability, Responsibility and Disclosure Act" (CARD), this law is a consumer-protection piece of legislation meant to keep the more barbaric practices of the industry under control. It will bar issuers from raising rates retroactively, instituting limitless fees and giving fewer than 6 weeks notice of rate increases (already in effect). It also protects gift card holders from finding their entire gift amount used up by issuer fees before they get a chance to use it.

My husband and I generally do not have problems with our credit card issuers. So when he received his Barclay's credit card bill this month, we were surprised but not upset to see a $42 charge for being 2 days late with the payment. After all, we always pay the full amount each month, and on time; between the holiday and the due date of January 2, however, his payment supposedly didn't get to them until the 4th. Although the penalty seemed high, we were sure he could get it removed, since this was the first time that this had happened.

Wrong! When he called Barclay's, not only did they say they could do nothing about the charge, they were downright rude. My husband became livid as his eyes sought out the "new" interest rate on his account: 933.85% per annum. Almost 1000% interest? Was this a mistake? Oh, no. You know what the bank rep said? "That's not a monthly rate, sir. It's for the whole year." Well, thanks for explaining to us what "per annum" means, you nasty little person.

I suggested he call our senator, John Olver. He spoke with one of his aides, who said that the credit card companies are going "crazy" with charges on the eve of the reform bill taking effect. Apparently, this is legal. He said he would like a copy of our bill to send along to Washington, though, just in case. My husband also mentioned that once he said he wanted to cancel his account, he was put on hold for ten minutes, twice in a row. Once they decide they don't want to talk to you anymore, this is what they do.

We will follow through by sending the bill and a letter to Olver, and closing the account. I had a few laughs listening to my spouse berating the bank reps, asking them whether they thought this was good customer relations and demanding of them how they could sleep at night while engaging in practices more befitting a pirate. Of course, they don't care. Their job is to squeeze as much money out of the customer as possible, by any means necessary.

As my husband commented, it is easy to see how these bank CEOs find the money for their huge bonuses. This incident doesn't scratch the surface of sleazy business practices banks use to take advantage of consumers. By the way, isn't it nice to know that our tax dollars were used to bail out these guys? Gives you a warm and fuzzy feeling, doesn't it?