I gave up credit cards 8 years ago. Prior to that, I had a mound of debt, high interest rates, and a bitter taste in my mouth from the entire order. Once out of debt, I vowed never to go back. And I haven’t. Yet credit card companies are still out there, and more predatory than ever. President Obama just signed the new credit card reform bill. While it is a welcomed start, there is a huge hole right in the center of it.
Lenders generate most of their profits from interest and fees, so this bill will be taken by them as a direct dip into their pocketbooks. Since the law won’t take effect until February of 2010, I expect them to ‘make the most’ of the next 8 months somehow. Just watch and see what they do.
There will now be a mandatory 45 day notice from lenders before a card’s interest rate can be increased, after the first year. My guess is that these notices will come disguised in microscopic print, with every attempt to hide it – possible buried in a lengthy “revised terms” sheet.
Some consumer groups feel that there will be a reaction from the credit industry in the face of this bill. Such acts might be more widespread annual fees, termination of grace periods, or removal of rewards programs. I say it will also include much higher interest rates that we are used to seeing.
Card issuers will no longer be able to raise interest rates the day after a payment’s due date. Now they must wait until a minimum payment has arrived 60 days late. And if this does happen, the interest rate must revert back to the original once the borrower has made six straight minimum payments on time. I do think this is a good feature of the bill, but they will find ways to make the most of what they have to work with here.
There are a few minor issues to deal with borrowers under the age of 21, such as proving their means to pay back their loans.
All of the provisions in this bill are certainly welcomed, but the perhaps the most significant problem was not addressed: high interest rates. Without a limit on the rate at which these predatory lenders can charge, much of the reform is for naught. They will continue to bury future exorbitant interest increases in their terms.
It’s not just credit cards that need to be considered. Payday loan centers, which charge hundreds of percent interest are not addressed, and the ridiculous “Payday Loan Reform Act of 2009″ does absolutely nothing to hinder this, and in fact can be said to promote payday lending.
People fall into traps of credit cards and payday loans every day. It has been a longstanding issue. Yes, buyer should beware, and everyone should always read the terms. But these predators will still find victims. There was a bill a couple years ago to limit the interest rate payday loans could charge to military personnel to 36%, but that hasn’t been extended to the rest of us. And I say 36% is still too much.
I don’t see why any legitimate business would need to charge more than, say 24% interest for anything. That was just an arbitrary number, mind you. But since it has been proven for decades that people cannot police themselves or the lending industry, it’s time to limit the amount of interest that can be charged for any time of loan. I know all about the free market system, capitalism, and all that good stuff. And yes there is a good argument that if someone is stupid enough to sign up for 300% interest, then why should the government step in and protect them…
Congress passes a lot of inflated and useless laws. A cap on lending interest rates would certainly not be the worst thing they could do.
Filed under: Consumers