Those unsolicited credit card offers that daily clogged your mailbox are gone, for now. When the economy recovers, they will return. But if a bill proposed by a New York congresswoman wins support, their power to wreck a household’s finances may be weakened.
Rep. Carolyn Maloney, D-N.Y., has proposed her Credit Cardholders’ Bill of Rights in the past, but now that her party controls Congress and the White House, it stands a chance of winning approval. The changes the bill would make are reasonable, but do not go far enough in some areas. The bill does not address interest rates, which can run as high as 28 percent.
President Obama has signaled his concern with credit cards by contacting executives from 14 lenders and expressing his displeasure with many of the same practices Rep. Maloney’s bill addresses.
While credit card lenders may feel they are being unfairly blamed for the tendency of many Americans to get into debt, the “plastic bank” is ripe for more regulation.
The Maloney bill focuses on the “fine print” aspects of credit card lender practices, such as sudden rate changes; the bill would require 45 days notice before raising a customer’s interest rate. The bill also would require card companies to send bills out 25 days prior to due dates; prohibit retroactive rate increases for reasons unrelated to use of the card; define the terms “fixed rate” and “prime rate”; and require companies to fairly allocate payments on balances at different interest rates (currently, many companies require customers to pay off the lower-rate balances first).
Rep. Maloney’s bill also would allow customers to set their own credit limits. This is at the heart of the problem with credit cards. On the one hand, free market advocates correctly argue that how much one charges is one’s choice. But when credit card companies routinely offered, as they did for the last 10 years or more, $50,000 in credit through unsolicited mailings, the consequences for the economy are too great to ignore.
Just as more regulation was needed in home mortgages, credit limits and interest rates must be similarly regulated. Credit card lenders will complain that such moves will eat into their profits; true enough. But when people routinely default on credit cards, or dump credit card debt onto their home equity lines, or find themselves stuck in a hamster wheel of being unable to pay down the principal, they are not helping the national economy grow in any sustainable way.
Rep. Maloney’s bill is a good first step at regulating this industry. It brings the government’s response to the economic crisis down to the level of “real people” problems. A good next step would be to set a credit card interest rate ceiling, perhaps at 15 percent. Again, card companies will shrink, but Americans will begin spending money on things other than interest, which is good for us all.