Cramer: New Credit Card Rules Not Tough Enough


I’m an old newspaper guy. So when the media come out with a David vs. Goliath piece on how the U.S. government, on behalf of the consumer, is going to hammer the credit card companies, I applaud it.

But I also take it with a grain of salt.

Case in point: USA Today came out last Thursday with a piece called “Feds adopt rules to crack down on some credit card abuses.” In it, the paper points out that the U.S. Treasury Department is about to change the credit card playing field, issuing new rules that:.

  • Change the timeline in which card issuers could change interest rates. Under the new rules, payment could not be deemed late unless the borrower is given a reasonable period of time, like 21 days, to pay.
  • Change credit limit penalties. Now, card companies can’t spike interest rates because a cardholder overshot the credit limit solely because of a hold placed on the account.
  • Eliminate double-cycle billing, where card companies manipulate payment dates to put them in a better position to apply payments that maximize interest penalties
  • Change the rules on how card companies can add “security” fees for issuing credit
  • Change the face of your credit card bill. From now on, credit card statements must clearly list the date (and time of day) that a payment is due. Plus, any changes to your card must be listed in bold and not be buried in the fine print.
  • Eliminate “universal defaults”. This one is long overdue – it ends the practice that enables credit card issuers to hike the interest rate on one card if you neglect a payment on another card.

It’s all good stuff and the USA Today piece, along with all the other stories I saw on the topic, have the requisite “it’s a great day for consumers” angle. Certainly, credit card companies need to be held accountable for their institutional arrogance. The mindset that card issuers can raise consumer rates with impunity, even if a cardholder is in good standing, was a terribly misguided one. Especially in a recession where people are hurting for cash.

But I’ve got my doubt about the new rules, too.

First, the credit card industry is going to take a $10 billion annually in missed interest payments, according to the law firm Morrison & Foerster. But credit card companies are used to getting bailouts – not giving them back – so if you think they’ll take that lying down, then I’ve an Illinois Senate seat to sell you. Sooner or later, card issuers will cry foul and lobby to have their risk-based pricing models put back in place – and they’ll use the threat of higher rates and tighter credit like a hammer to make their point.

Plus, the new rules don’t take effect until July, 2010. How is that going to help a cash-strapped cardholder whose interest rate just jumped from 9% to 16%? Cardholders need help today. Fat chance - card companies will use the next 18 months to jack up rates as high as they can before the window closes – the last thing consumers need.

That’s not all. People with low credit scores and limited credit histories may find themselves shut out of the credit card market. That’s fine for people who have a lousy track record of paying bills. But what about the guy who has suffered financial hardship, like the loss of a job or a health issue? Most of these people eventually get back on their feet. Do we want to limit a potentially helpful financial tool?

Don’t get me wrong. I’m all for holding the card industry accountable for its one-sided attitude on interest rates, penalties and fees, particularly at a time when consumers’ disposal income is so low. But there is too much wiggle room here for card issuers, who have come to feast on rate hikes and fees like vampires feast on blood.

Like Dracula, they’re bound to rise from the grave again.

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