Alvin Bessent joined the Newsday editorial board in 1993. He writes about national government policy and politics.
This is the time of year when consumers develop an intense
love-hate relationship with their credit cards.
Nothing else is quite the boon and bane of personal finances that those
little slips of plastic have become. In this season for giving, they free us
from the tyranny of an anemic cash flow. But they enslave us to the tyranny of
high interest-rate debt.
Conflicted consumers take heart: Washington is here to help. No, really.
New rules from the Federal Reserve and the Office of Thrift Supervision will
ban some of the more egregious tricks of the trade that net credit card
companies billions of dollars in undeserved fees and interest.
Ever had the interest rate suddenly shoot up on an existing card balance,
even though you'd never been late with a payment?
Ever mail a payment only to find that there was so little time between the
billing and due dates that by the time it was posted the bill was overdue,
costing you a late fee?
Ever wonder why payments above the minimum due were credited to the portion
of your debt with the lowest interest rate, leaving higher interest rate debt
untouched to drive up future balances? It's costly policies like those that the
new rules will prohibit.
"Finally, these practices have been declared what they are: unfair and
deceptive," said Rep. Carolyn Maloney (D-Manhattan) who sponsored a tougher
cardholders' bill of rights that passed the House in September, only to
languish in the Senate. The Fed incorporated many of the changes she championed.
One key reform is that in most circumstances banks will no longer be
allowed to retroactively raise interest rates on existing card balances. Right
now they can jack up interest rates as a result of anything that lowers your
Late with a payment on some other card? Your rate goes up. Take out a
mortgage, changing your income-to-debt ratio? Your rate goes up. Dispute a bill
on a different account and withhold payment until it's sorted out? Your rate
Those soon-to-be-banned practices siphon an estimated $10 billion a year
out of the pockets of credit cardholders and funnel it into the coffers of
credit card companies. When times were good, the issue never achieved critical
mass. Even now consumers won't get that multibillion-dollar gift anytime soon.
The new rules won't take effect until July 2010. That's too long to wait.
Banks obviously need some time to prepare for the changes. But 18 months to
reform practices now officially declared unfair and deceptive?
Maloney plans to reintroduce her credit cardholders bill of rights in
January. She wants to set an earlier implementation date and enshrine the
reforms in law, after adding a few more to the list. Things like prohibiting
the marketing of credit cards to minors, and protections for consumers hit with
exorbitant fees for overdrafts on their bank accounts.
After shoveling billions of taxpayer dollars into bailouts for banks,
consumers deserve a break. After all, 'tis the season.
Alvin Bessent is a member of Newsday's editorial board.