Credit Card Regulation–One Big Loophole?
Credit Card Regulation Failing?
The Credit CARD Act of 2009 has some simple objectives. For example, according the White House’s website, the legislation:
- Bans Unfair Rate Increases
- Prevents Unfair Fee Traps
But today’s Wall Street Journal raises real questions about whether this latest wave of credit card regulation has seriously prevented card issuers from gouging customers, even in these two respects.
Credit Card Companies “Outflank Law?”
Take credit card rates. The new law says that credit card companies can raise them only in exceptional circumstances. But at least one card issuer has issued an ultimatum to some of its customers–waive your rights so we can raise your rates or we’ll more than double your monthly minimum payments.
Another of the credit card companies circumvented fee restrictions by hiking rates before the act came into force. Those who are late paying or who exceed their limits now pay penalty fees that are lower than before, but they don’t receive the rate “refund” that they would have received had they not breached their credit card terms. To mangle Shakespeare, “That which we call a fee by any other name would stink as high.”
A third issuer has also been clever in manipulating its credit card terms. It charges a $95 “processing fee” before a credit card is even issued, thus avoiding the law’s restrictions on how much they can charge in fees during the first year after an account has been opened.
Business Credit Cards to Remain Unregulated?
Tuesday’s BusinessWeek discussed a new report from the Federal Reserve that argues that business credit cards should remain unregulated. The Fed says that credit card companies:
…have more difficulty assessing the creditworthiness of small businesses than consumers. Therefore, the willingness of issuers to extend the relatively large credit card lines that small businesses require may depend importantly on issuers’ ability to adjust prices in the future, as they learn through experience about businesses’ ability and willingness to pay. Restricting the ability of card issuers to adjust interest rates may lead to higher initial interest rates, which would harm those firms that borrow on small business credit cards.
That sounds convincing until you remember that Bank of America announced April 1 that it was voluntarily extending the protections offered by the Credit CARD Act to its business customers. Are we supposed to believe that BoA is subject to different economic laws from the rest?
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