Credit Card Regulation Set to Die?

This week, the Hill’s latest attempt at credit card regulation passed out of the key Senate Banking Committee. The Expedited CARD Reform for Consumers Act–which would bring forward the regulation of credit card rates to December 1–may have cleared its first legislative hurdle, but its chances of passing into law are not good.

Indeed, the Wall Street Journal yesterday described its enactment as an “unlikely event.”

Credit Card Rates Ever Upward

As described in Monday’s column, legislators claim that the months between the Credit CARD Act being signed into law, and its full implementation in February 2010, were meant to be a grace period. As Senator Mark Udall (D-Colorado) put it, it was intended to allow credit card companies: “…ample time to update their computer systems and implement the new, consumer friendly policies.”

But research by the Safe Credit Cards Project at The Pew Charitable Trusts suggests that companies have instead used the time to duck new regulation by substantially increasing credit card rates while they can.

Credit Card Terms and Conditions Also Questioned

But it’s not just rising interest rates that bother the people at the Pew project. They’re also concerned by certain credit card terms and conditions that have been described by the Federal Reserve as “unfair, and deceptive.”

When he recently gave evidence to a congressional committee, Nick Bourne, who manages the Safe Credit Cards Project, revealed a number of worrying practices. In particular, he highlighted:

• “Hair-trigger” penalties that result from occasional, minor infractions
• The application of payments in a way that maximizes interest, fees, and penalty costs
• Unrestricted overlimit fees
• Disproportionate penalty rate increases that can add thousands of dollars to a cardholder’s annual costs

Credit Card Companies Doing What Comes Naturally?

Some argue that credit card companies are merely taking the opportunity to manage their risks responsibly in advance of government regulation that threatens to destabilize their traditional business models. An editorial in yesterday’s Wall Street Journal, for example, said: “If customers are being taken to the cleaners, it is because lawmakers like Mr. Dodd [Senate Banking Chairman Chris Dodd (D-CT), out of whose committee the bill just passed] sent them there.”

The WSJ editorial continued:

In the unlikely event that Mr. Dodd’s new legislation passes, banks would limit their risk in other ways, such as canceling cards or refusing to extend credit to marginal customers. The unavailability of credit can also be a burden on struggling families, not to mention having a depressive effect on the economy.

That is a good point. But others might argue that card issuers are simply making up in the only way they know for the losses that they themselves created through irresponsible lending: by gouging customers.

But whoever is correct, greater transparency and honesty in the credit card market can surely only be a good thing.

Published 10/29/09 (Modified 04/23/12)