I was shocked and then disappointed when I read the title of a recent WSJ article, “Lawmakers Urge Crackdown on Business Cards.” The Author, Jessica Silver-Greenberg, sums up the request from the usual players in the world of “Americans are too stupid to take care of themselves”
A group of four U.S. Senate Democrats, including New York’s Charles Schumer and Florida’s Bill Nelson, urged the Federal Reserve today to crack down on the marketing of business credit cards, which don’t come with many protections that are standard on basic consumer credit cards.
In a letter to Federal Reserve Chairman Ben Bernanke, the senators asked that the agency require credit-card companies to improve disclosures on the business cards, and more clearly warn consumers that the cards aren’t protected by the latest regulations, which rein in billing practices such as sudden interest-rate hikes.
Why was I disappointed that Business Credit Cards is EvEn a Discussion in Congress?
- Because I realized that something like this will probably pass because who doesn’t like the idea of protection
- Because I realized that lawmakers were spending time on this topic despite being in 3 wars, a looming debt ceiling, and a stock market which has given back all its gains year to date
- Because I realized that no one learned the law of unintended consequences
Unintended Consequences of the CARD Act 2009
The Credit CARD Act of 2009 (Credit Card Accountability Responsibility and Disclosure Act of 2009) provided for certain protections for you and I from the big bad credit card companies. Among others they these protections include:
- Cardholders deserve protections against arbitrary interest rate increases.
- Requires card companies give cardholders 45 days notice of any interest rate increases.
- Gives cardholders the right to cancel their card and pay off their existing balance at the existing interest rate and repayment schedule if an interest rate increase is imposed; gives cardholders three billing cycles after the rate increase to decline these new terms.
- Cardholders who pay on time should not be penalized.
- Prohibits card companies from charging interest on debt that is paid on time during a grace period. This prevents the “double-cycle billing” practice.
- Prohibits card companies from assessing fees on the remaining interest-only balance of a cardholder who has paid his/her bill on time.
- Cardholders should be protected from due date gimmicks.
- Gives cardholders time to pay their bills by requiring card companies to mail billing statements 21 calendar days before the due date (14 days was the previous minimum).
- Requires that payments made before 5 p.m. on the due date be considered timely.
- Cardholders should be protected from misleading terms.
- Prevents card companies from using terms such as “fixed rate” and “prime rate” in a misleading or deceptive manner by establishing single, set definitions of those terms.
- Gives cardholders who get pre-approved for a card the right to reject that card up until the moment they activate it without having their credit adversely impacted.
- Imposes a requirement that creditors have a minimum size font on their statements to improve readability of the terms for the credit card.
- Cardholders deserve the right to set limits on their credit.
- Requires card companies to offer consumers the option of having a fixed credit limit that cannot be exceeded.
- Card companies should fairly credit and allocate payments. (Title I, Sec 104 (4))
- Requires card payments to be applied to the debt with the highest interest rate first, such as high-interest cash advances. It used to be that card companies could use debtors’ payments to pay off the lowest interest rate balances first. The dollar amount of the minimum payment may still apply to pay off the lowest interest rate; however any dollar amount more than the minimum payment will be applied to the highest interest debt.
- Card companies should not impose excessive fees on cardholders.
- Limits the number of “over-the-limit” fees card companies are allowed to charge to 3 billing cycles. Some card companies currently charge limitless fees for going over credit limits.
- Unless the consumer has expressly permitted the creditor to approve charges which make the balance over the limit, the creditor is not allowed to charge an over-the-limit fee if the balance goes over the limit.
- Vulnerable consumers should be protected from fee-heavy subprime credit cards.
- Requires that all fees for subprime cards, whose total fixed fees over a year exceed 25 percent of the credit limit, be paid up front before the card is issued. These cards are generally targeted to vulnerable consumers.
- Congress should provide better oversight of the credit card industry.
- Improves existing data collection on industry profits, as well as card fees and rates; requires this information to be presented to Congress every year.
- Minimum payment explanation
- Requires that creditors print on their statements if the debtor makes the minimum payment only (with no further increases in debt) how long it would take to retire the debt and how much the debtor would pay in interest combined.
- Requires creditors to print on their statements the payment it would take the debtor to retire the debt in three years, how much the debtor would pay in interest combined and the difference than if the debtor was to pay only the minimum payment.
- Limits credit cards to teens
- A credit card cannot be issued to someone under age 21, unless they have a co-signer (who is 21 or over), or can provide proof of a means to repay.
- College bank curtailment
- Requires banks to provide a reason for participating on college campuses and at university-themed events.
- Outlaws banks giving gifts or any promotional items (such as coupons for free pizza) to entice debtors to take on debt by signing with their credit cards.
- Establishes resources for approved non-profit credit counseling
- Requires card issuers to make a toll-free phone number available on statements for consumers to reach non-profit credit counseling and debt management organizations.
- Cardholders deserve protections against arbitrary interest rate increases.
Sound like great protections, right? But I felt like I was taking crazy pills when the bill was being debated. What did anyone think was going to happen when you limit a companies profit? They would just lie down and take it because they are the big bad credit card company? It is that kind of thinking that makes me NUTS.
A self proclaimed fan of the CARD Act, Geoffery Williams, provides 5 Unintended Consequences of the Credit CARD Act:
- Higher Interest Rates – The average jumped over 2% since enactment
- Higher Fees – Whaaaat? I think this Act was going to save us from higher fees? Nope. The Act just makes them change where they get their money from
- Less Credit – You are going to restrict the credit lenders so they have to be more careful
- Non-Working Spouses May be Denied Credit – A really interesting unintended consequence that should have been known since one of the provisions is that if you don’t work you can’t claim household income as your own.
- More Bankruptcies – Not sure I agree with this one as there is a difference between correlation and causation
Government Protection in the Business Credit Card World is a Terrible Idea
Is there anyone out there who can logically argue that those unintended consequences that the CARD Act had wouldn’t happen to the business market?
- More expensive debt is exactly what is needed for businesses today
- More Fees is exactly what is needed for businesses today
- Less Credit – I was just talking to a business owner today who said, “I need less credit” lol
Do you feel crazy also when you read things like this? or am I just overly sensitive?