Power to the People?

Perhaps you’re aware that the President just signed the “Credit Card Accountability, Responsibility and Disclosure Act of 2009.” I admit, I’m always highly suspicious of when the names of these things are so sunny, so I took a closer look.

On its face(!), there is so much to like about this new set of laws, which prohibit a lot of the most heinous credit card practices. Here are some highlights of what this bill does:

Requires 45 days notice before rates can increase, and won’t allow the increase on existing balances.
Puts an end to double-cycle billing. (This was a horrible practice that basically charged full interest on a balance for two months even if most of it was paid off!)
Stops the “gotcha” over-limit charges, without prior consent. Before, when you unwittingly went over your limit, the transaction would be approved for your “convenience,” but you’d be nailed with over-limit fees.
No interest can be charged on fees. Before, fees would just be added to your balance, and treated the same.
Bill statements have to be mailed a full three weeks before they’re due, and if you can prove you mailed it a week before it was due, you can’t be charged a late fee.
Nukes Universal Default. This was really egregious. Say you’re late with your phone bill. The credit card companies would raise your rates in response. Never mind that your payment to them was always on time!
Prevents credit card issuers from changing the terms of a credit card contract for the length of the card agreement. Exceptions: some fees.
Prevents credit card issuers from changing the terms of a credit card contract for the length of the card agreement. Young consumers need parental permission to get a card. This is fantastic! Far too many high school and college kids were going into tremendous debt and the parents responsible for them had no idea!

Naturally, credit card companies aren’t going to take this lying down, and they’re already moving to control the damage. Most ominously, today I got notice of a “new” card to replace my old one from one of my credit card issuers. No doubt the terms of that agreement make an end-run around some of these restrictions. The bill left open a few gaping loop holes. Some possibilities as to how the banks will fight back:

Count on the interest rates going up dramatically. The bill left the A.P.R. limited only by the sky.
Fees will approach “cruel and unusual punishment” in stature. Again, the bill left most of those to the discretion of the credit card companies. Oh, and remember how annual fees were going the way of the buggy whip? Analysts expect those to come back stronger than bell-bottoms.
Say ‘Goodnight,’ Gracie. Very likely new purchases will start earning interest right away; no more free float if you pay off your card every month! This is the biggest bummer to tightwads.

Shoot, there’re so many advantages to credit cards, if you pay them off every month, of course. They’re better than cash, because if they’re lost or stolen, the company eats the charges. It’s easier to buy things on-line with them. Certain consumer protections are covered by the card, if you buy a substandard product. I was rather fond of the cash back I got on my best card, too, though I doubt very much that’ll make up for the interest I’ll pay with no grace period, and an annual fee.

What can we do about this?

Pay with cash. Welcome back, privacy. Make sure you record what you spent and where for your own records.
Pay straight out of your checking account with a check card. Not as many protections if it’s lost or stolen. And check if there’s an extra “transaction fee” charged by the merchant for this privilege.
Get a PayPal account for on-line purchases. Fees are borne by the seller. You can even get a check card for that account.
Does anyone take a check anymore? Just curious.
You might have to hang on to one credit card just for emergencies, car rental damage insurance and other goodies. Call every year and see if they’ll remove the annual fee. They regularly do now, but that may change.

As our world changes, we just have to keep adapting along with it!

Oh, one ominous note. Tell me if I’m reading this right:

Sec. 401. Inclusion of all Federal banking agencies. Amends the Federal Trade Commission Act to transfer to each federal banking agency, with respect to depository institutions it supervises, the authority to prescribe regulations governing unfair or deceptive practices by banks and savings and loan institutions. Requires the federal banking agencies to prescribe such regulations: (1) jointly to the extent practicable; and (2) in consultation with the Federal Trade Commission (FTC). Instructs the Comptroller General to report to Congress on the status of regulations of the federal banking agencies and the NCUA regarding unfair and deceptive acts or practices by depository institutions.

“Federal banking agency” is part of the Federal Reserve, right? Which is the banking system? And banks are the biggest credit card issuers? Does this mean control over enforcement has just been handed to the very institutions that are issuing the cards in the first place? Hmmm....