What Is: Credit Cardholders Bill of Rights

The saga begins....

On April 17th, Congressional hearings were held by the House Financial Services Subcommittee on Financial Institutions and Consumer Credit in regards to the proposed Credit Cardholders’ Bill of Rights Act of 2008. For the first time, consumers were allowed to testify without being forced to allow their private financial information to be made public. They were still not allowed to speak in their native tongue and or with the use of a table-top microphone (just kidding).

Anyways, the unchecked greed of the credit card companies has finally drawn the ire of Congress. What does this mean to you and I? Likely nothing. Congress has a long track record showing it's lack of ability to pass meaningful legislation. The current group of corrupt individuals is no different. But lets assume for a few minutes that none of our congressional members are on the take with CitiGroup, American Express, Discover, Chase, Visa, Bank of America... What if the legislation were to pass through both houses and get signed into law by W without major deviation from it's current language and intent?

According to the House Committee on Financial Services website, the 'Bill of Rights' Act contains the following (my comments on each will follow in RED):

  • Amends the Truth in Lending Act to prohibit a creditor from using certain adverse information, including information in a consumer report or any change in a consumer's credit score, as the basis for increasing any annual percentage rate (APR) of interest on the consumer's outstanding balance under an open end consumer credit plan, except for actions or omissions of the consumer directly related to such account. (Thus eliminates the universal default for credit already outstanding.) This is a very good thing. Universal Default clauses are absolutely evil and should be outlawed.
  • Bars a creditor from changing any term of the contract or agreement of an open end consumer credit plan until contract renewal, except for specific material reasons already contained in the contract or agreement. Another major complaint of cardholders is the way that card issuers can change the agreement signed by the card holder on a whim, as stated in the said cardholder-signed agreement. This kind of language is used in other legal documents and should be more broadly regulated - not just in cardholder agreements.

  • Requires advance notice of credit card account rate increases. "Advance notice" is a bit of a broad term. Card issuers wouldn't abuse broad language used in laws, would they?

  • Authorizes a consumer who receives such notice to: (1) cancel the credit card without penalty or the imposition of any fee; and (2) pay any outstanding balance that accrued before the effective date of the increase at the APR and in the repayment period in effect before notice was received. You may be very surprised to find out that this is not the case today. Credit cards may not be evil, but the companies who issue them are. With the little to no regulation that we have today, the terms of these agreements are at the issuer's discretion, and you can see how well that is working out.

  • Prohibits a creditor from imposing interest on credit repaid within the interest-free repayment time period. (Thus prohibits double cycle billing). Yes. That's right, issuers have found a way to charge you interest on your balance during the "interest-free" period (ie. before the payment is due). "If I pay my balance in full each month then I'll never pay interest and there is no risk." Now tell me there is no risk. There is always risk with credit. And it's policies like Double Cycle Billing and Universal Default that show just how creative these issuers are at creating new risk and then sneaking it into the cardholder agreements and terms of service changes.

  • Prohibits the imposition of fees on any outstanding balance on a credit card account attributable only to accrued interest on previously repaid credit. I have no idea what that means. Straight from the legislation, "If the outstanding balance on a credit card account under an open end consumer credit plan represents an amount attributable only to accrued interest on previously repaid credit extended under the plan--

        `(A) no fee may be imposed or collected in connection with such balance; and
        `(B) any failure to make timely repayments of such balance shall not constitute a default on the account.
  • Requires each periodic statement of account to provide specified information on obtaining the payoff balance. As someone with no credit card debt, it is hard to fathom that this information would not be on the bill. But the issuer has no interest in helping the cardholder pay off the account. It's all about the fees, baby. What is crazy is that this is just requiring information on obtaining the payoff balance, and not requiring the payoff balance itself to be noted. As I understand it, that balance changes daily, if only by a few cents.

  • Prohibits a creditor from furnishing information to a consumer reporting agency concerning a newly opened credit card account until the consumer has used or activated the credit card. Here they've tossed a bone to the folks playing credit score games. "I applied for an AmEx Purple card and my credit score went down 5 points! 5 points!!!" Get a life. I really hope that there is some real purpose for this line item.

  • Details mandatory pro rata payment allocations by a creditor. This is a good thing as there is all kinds of abuse in terms of where payments get credited. When you are talking pro-rata plans, you are typically working with a debt collector or at least the in-house collections department of an issuer (the lowest of the low). Pro-rata plans are used when you cannot make even minimum payments on you debt. The pro-rata plan itself would include a copy of you budget, and sheet showing how your are repaying debts with what you do have to work with. This is don by listing your disposable income, your debts, the percentage of your total debt that each debt represents, and the amount going to each debt (figured by said percentage X disposable income)

  • Authorizes a consumer to opt-out of creditor authorization of over-the-limit transactions if fees are imposed. A long-time criticism of debit cards is that the bank will let you overspend your account and then charge you fees for going over the limit. Which is true, and does suck. The same is true of credit cards. The 'limit' is simply a threshold allowing the issuer to charge more fees. The fallacy of the Reps drafting this bill is that this feature should be an 'opt-IN', thus implying an opt-OUT by default.

  • Restricts the frequency of over-the-limit fees. Fees, fees, out-of-control fees. Do they really think that they can stop them?

  • Specifies the contents of credit card price and availability information the Board of Governors of the Federal Reserve System must collect and make public semiannually. Sounds interesting. Has anyone outside of the Beltway even heard of the "Board of Governors of the Federal Reserve System", let alone know to look for this magical report produced by the group. Near as I can tell, this a collection of information from credit issuers that includes interest rates charged and how many people they were charged to, a list of each type of fee charged to a cardholder, the total number of cardholders that we charged interest... It's information that will give Congress a better grasp of what is going on, which is great, but means very little to you and I.

  • Prescribes a standard for the initial issuance of subprime or "fee harvester" cards (accounts requiring first-year fee payments in excess of 25% of the total amount of credit authorized). These 'standards' require that fees be paid upfront, before the account is opened and the card is issued. Said fees cannot be charged to said card. No more, no less.

After reading the bill itself, I would have to conclude that this "Cardholders' Bill of Rights" amounts to little more than:
  • An attempt to end Universal Default
  • An attempt to end Double Cycle Billing
  • An attempt to regulate fees
  • Some regulation of procedures
  • A few amendments to the truth in lending act that have little affect on the cardholder.
It's not terribly impressive as written today. Don't get me wrong - there is good intent behind it. Even if this is successful in ending UD and DCB, we are talking about the industry that invented and embraced UD and DCB! I don't see the consumer rights or industry regulation capable of stopping the next UD and DCB. Is it bad legislation? No, a few years too late, but not bad. I do disagree with the title of "Credit Cardholders Bill of Rights" as it is a tad misleading - possibly done intentionally to gain support in Congress. I mean, who would vote against a "Credit Cardholders Bill of Rights"? That won't get you re-elected.

This bill will likely get a lot of press, but it is important to look past the hype of 'putting the credit card companies on trial...' as see through to what the legislation actually does.

The real fundamental shortcoming is the failure to address the real issues with debit cards and credit cards alike and the reluctance to regulate their issuers. Another day, perhaps.

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