Credit card rules likely to change on Tuesday
We get little advertising slicks in our credit card bills all the time. For the most part, I ignore them and toss them in the trash. This past week, however, I got one that was from the card company itself telling us about an available option to change how our credit card handles overdrafts. The default behavior when your basic credit account is overdrawn is for the issuing company to go ahead and extend the credit (to a reasonable amount) but charge you for the overdraft. The new option available was to instruct the company to not do this and return a “denied” result back to the store you’re trying to buy something from. While this would put you in a position of having to either walk away from the purchase or find another card to put it on, it would avoid overdraft charges being applied to your account since the overdraft would not be permitted.
Interesting, yes? I thought to myself at the time that this was an unusual offer to hear a bank make to its cardholders. Sunday’s paper illuminated the reason why the banks were suddenly interested in helping us avoid racking up penalties and fees on our accounts:
The Federal Reserve on Thursday will vote on sweeping reform of the credit card industry that would ban practices such as retroactively increasing interest rates at will and charging late fees when consumers are not given a reasonable amount of time to make payments.
The Fed, which has been considering the proposed changes since May, declined this week to release details of the final draft regulations. But banking officials and consumer advocates said that they do not expect substantial changes before the vote, especially since members of Congress have pressured the Fed not to water down the rules.
We’re pretty careful with our cards and we don’t come anywhere close to the limits set on them. We pay on time so our interest rates don’t get kicked up. Unfortunately, card companies have begun to reach for new ways to squeeze more fees out of us and they’re looking for more excuses to kick up the interest rates. The story reports on a practice I first heard of when a friend had a falling out with their local cable company. While disputing the cable company’s final bill (which he says covered a time period after he’d canceled the service) he was listed in his credit report as being in arrears in payment. Now, he managed to get the company and the credit reporting agencies to remove that listing but not before his credit card companies noticed. In response to his being “late in paying” his cable bill, the credit card company unilaterally raised his card’s interest rate. In spite of his being scrupulous about making his card payments on schedule, the card company treated him as if he’d been late paying them when he was “late” paying another company.
As you might imagine, he went ballistic on them and immediately canceled the card. In looking around for a new card company, he was astonished to learn that this practice – called “Universal Default” – was gaining acceptance throughout the industry. That is 1 practice that the Fed is looking to ban with these rules changes. Shortening payment intervals and retroactive rate hikes are also things being discussed as heading for a ban.
I don’t have a lot of sympathy for people who get a credit card and then run it up to the maximum buying things they’d never consider buying if they had to shell out cash for them. People who bring in $3000 a month in salary should not be buying $5000 a month in stuff on a regular basis. That said, I also have a lack of sympathy for the credit card companies who push 1 card offer after another to people who shouldn’t be considered qualified for credit. The business practices those card companies have engaged in (those I’ve mentioned and others mentioned in the story) have done nothing to garner any more sympathy from me and, clearly, the Fed feels the same. The proposed changes to rules banning the things they’re talking about are just fine with me. The industry warns that they might have to cut back on the credit they extend. Perhaps if they did that, they wouldn’t be having to write off several million dollars in bad card debt. A bit more financial prudence on their part might just help everyone. And, since they clearly haven’t been able to police themselves, I guess We the People are going to have to do it for them.
