So even with tens of billions of dollars from you and Crabby Old Lady to save their sorry asses, credit card banks need legislation to keep them from acting like the local loan shark.
Yesterday, the House of Representatives overwhelming passed the Credit Card Accountability, Responsibility and Disclosure Act of 2009 which the Senate had overwhelming passed on Tuesday. President Obama is expected to sign the new rules into law.
In their story immediately following the Senate vote yesterday, The New York Times reported:
"Democrats said the rules were needed because the companies were engaging in abusive practices at a time when Americans were more reliant on their cards because of the recession."
Crabby Old Lady can't help but wonder if that means Democrats believe abusive practices by the banks are acceptable during non-recessionary times.
The mandated changes in the Senate bill reveal the extent to which credit card banks have been abusiing customers for decades:
• Banks will now be required to send out bills at least 21 days before payment is due rather than 14 days or, as happened to Crabby once, seven days before the due date
• The cutoff time before late charges kick in on the due date would now be 5PM instead of an early morning hour as in the past
• No more late charges if the due date falls on a Sunday or holiday and your payment arrives a day later
• If there are charges on your bill with several different interest rates and you make a partial payment, now the payment would be applied first to the highest rate charges, not the lowest
• You must be given at least 45 days notice of increased interest rates (Crabby just received an increase that goes into effect in 30 days)
• Penalty fees and penalty interest rates can no longer be applied until you are at least 60 days late with the minimum payment
• Overdraft privileges are now “opt in” rather than applied automatically – with a big, fat fee – if you go over your credit limit
These are the major changes. There are others and more details in the full text of the bill.
It sounds pretty good, right? And the restrictions are needed. But did you notice the giant hole in this legislation? That's right – there is no cap on interest rates. Some individual states limit interest rates, but this bill is silent on the issue. You can thank the banking lobby our senators are beholden to for that.
While the bill was being written, Senator Bernie Sanders tried to add an amendment that would have capped interest rates at 15 percent which is still unreasonable, but better. It got only 33 votes of support.
"When banks are charging 30 percent interest rates, they are not making credit available," said Senator Sanders. "They are engaged in loan sharking."
But Congress is listening to the bank lobby, not one of their own, so we are stuck with credit card “reform” that leaves the biggest outrage intact. And mark Crabby's word – the banks will figure out new ways to further gouge us.
Oh, wait. They have already announced (threatened?) one such method - they will reinstitute annual fees:
“People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, [David Robertson, publisher of the Nilson Report, which tracks the credit card business], said, because many have not had to pay an annual fee even as they collect points for air travel and other perks.
“'Despite all the terrible things that have been said, you’re making out like a bandit,' he said. 'That’s a third of credit card customers, 50 million people who have gotten a great deal.'”
- The New York Times, 19 May 2008
That's just horse pucky. Banks charge merchants up to six percent for each credit card transaction. They charge outrageously high fees to customers for cash advances and other transactions that don't relate to paying in full each month. And there is no requirement to offer cash back, travel points and other incentives - Crabby Old Lady has never used them anyway.
Whatever default trouble the credit card divisions of banks say they are suffering is similar to the bank housing collapse: they handed out billions of credit cards to people without the means to pay. That is just dumb and Crabby Old Lady is incensed that the banking industry will now require their customers to pay for their own bad business practices.
Congress and the media are crowing about the wonderful legislation that has been created. But it falls far short of real reform and leaves the banks a lot of room to continue their predator/prey business model.
At The Elder Storytelling Place today, Camille Koepnick Shaffer: The Tag Team Rascals.