Thinking credit card reform, think again
The big news today is that the credit card act passed by Congress and signed into law by President Obama takes effect today. Highly touted as offering relief to the American consumer, it falls short on most counts.
The bill does very little to actually help the consumer addressing only minor reforms like late billing and advanced notice of interest rate hikes.
But the biggest failure by Congress and the President was not limiting the interest rate that could be charged by the credit card companies, rates that might make a loan shark look like a reasonable alternative.
And the credit card companies cried all the way back to the bank after their lobbyists beat up our legislators.
Just the other day, my Citi card notice arrived announcing a new higher interest rate in advance of today's credit card reform. The letter basically said that I'd understand that the credit card companies currently had problems because many consumers were delinquent and that they had to make up for that by raising the interest rate on their best customers to 24.9%.
Now thankfully, I don't have a balance and pay my bill in full every month. But I can imagine that these usurious interest rates aren't going to help the vast majority of the American people who have a balance.
Oh, and the banks who control most of the credit cards are familiar names, Citi, Bank of America, JP Morgan Chase, American Express, Capital One and Discover. Take a look at who received government bailout funds and every one of these fine institutions was on the list. Nice!
Now, here's the problem. You have to have a credit card to have a good credit rating and you need a good credit rating to obtain a mortgage. And when the credit card companies reduce your credit limit (which they have also been doing recently so that they can reduce risk), your balance as a percentage of the limit increases and your credit score will drop. Bottom line, do your very best to pay down your balance and keep your credit card.
Speaking of mortgages, rates are still hovering around 5% for a 30 year fixed loan.
Chuck Jaffe with an excellent article at MarketWatch, New credit card rules fail consumers. And for some real entertainment, check out the comments!