The credit card bill was signed before Memorial Day just a few days ago and already, it is getting hit by criticisms left and right. Credit card industry supporters are saying that the bill ultimately cuts off credit from people when they need it the most. Credit cardholder advocates are calling the legislation weak.
The credit card bill is essentially a legislation that came out directly from the credit cardholders themselves. The complaints of credit cardholders got loud enough that lawmakers finally paid attention. With the constant prodding of their constituents and President Barack Obama himself, Congress released a workable credit card bill in record time. Except for the “guns in national parks” amendment, the credit card bill is basically what the credit cardholders asked for.
Unfair and downright deceptive practices of credit card companies had gone on for several years before the government finally took a stand against them.
Over the years, credit card companies had figured out that they could maximize profits by shifting their target from responsible credit card owners to credit cardholders who cannot fully pay off their debts but are willing to pay penalty fees to be allowed credit. The credit card companies basically make money off people who are desperately trying to pay off their debts as much as they can. They do this by increasing interest rates as the debt ages, adding penalty fees to late payments, and deceptive practices, such as including a “minimum amount due” entry in their bills, which when followed does not actually subtract from the debt balance of the credit line.
Other practices include initially offering very low interest rates that go sky high once the balance goes unpaid even for a month, and allowing overdrafts by default but charging high penalty fees for it later on.
The credit card bill restores some semblance of fairness between credit card companies and cardholders. Legislation in the credit card forces credit card companies to give ample warning to credit cardholders before raising interest rates, restores raised interest rates to lower levels if the cardholder consistently pays off the balance for six months, and encourages full disclosure by credit card companies of their policies.
These measures will definitely hurt the profitability of credit card companies. However, it will not mean the end of their business; they simply have to adjust to a fairer, more consumer-oriented business model. Credit cardholder advocates should also appreciate the advantages of credit cardholders receive and they should face the fact that a lot of the responsibility for avoiding credit card debt lies on the credit cardholders themselves. In any case, the credit card bill may only be the opening salvo, as legislators continue to look into other issues pertaining to the credit card industry.