Student Blog: Thoughts On The Law And The Legal Field
THE FEDERAL CREDIT CARD ACT OF 2009 - WHAT WILL IT COST CONSUMERS?
The Credit Card Act of 2009 ("the Act") grants to consumers an entire host of new statutory rights with respect to their unsecured revolving credit accounts. Among those new rights include protection from misleading terminology, arbitrary interest rate increases, and freedom from excessive fees. While a boon to many consumers, it is well known that nothing in life is free.
It hardly needs to be said that Credit Card Companies are not charities. Lenders will adapt to the provisions of the act and find their profit in other ways, and if they cannot they will tighten lending standards in order to minimize their exposure to risk; in either case it is consumers who pay the price for these new protections under the Act. Already, many lenders are increasing interest rates on open accounts in anticipation of the Act's effective date of February 22, 2010. Unsurprisingly, the Act fails to set a cap on credit card interest rates. Savvy lenders also know to sidestep state usury laws which cap interest rates by relocating to more favorable jurisdictions, and then exporting those higher rates across the nation.
Furthermore, while excessive late payment and overdraft fees can be avoided by scrupulous monitoring, rising interest rates left unchecked by the Act will ultimately lead to higher borrowing costs for the consumer in the long term. Consider that before the Act's passage, lenders were typically offering absurdly low interest rates in order to entice new customers with the expectation that fees would constitute the bulk of their earnings. Knowledgeable and experienced borrowers would make certain that they read the fine print of their card's terms in order to stay in compliance and avoid late fees and rate hikes. In the event that a consumer was unhappy with one card's rates, transferring pre-existing balances to another card with more favorable rates or fees was a feasible and oftentimes readily available option.
After the Act, consumers no longer have such attractive options. They are protected from many of the egregious tricks lenders used to increase their earnings, such as the notorious double billing and universal default clauses, but at the cost of higher interest rates and decreased availability of easy, low cost credit. And for those consumers who knew how to game the system by constantly switching lenders and carefully monitoring their payment deadlines and credit limits, they are now subsidizing the cost of borrowing for those consumers who did not.
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I'm left a little wanting after reading the title of this article. I'm not exactly sure what the COST is. I think, this may be semantics, but a clearer definition of COST would be nice.
Your article seems to indicate that in order to have a LOW COST credit card, you need to spend time reading fine print and understanding terminology. The passage of the act will make this easier. So we should see 1-less time speant decoding card agreements and 2-more people with a better understanding of how their card works. The increase in information and decreas in time seem to me to be GAINS that outweigh COSTS.
You list the "cost" of higher interest rates and decreased avaialabilty of easy low cost credit. I would aregue that this would actually decrease "costs" to CONSUMERS. If getting credit becomes less obtainiable, then those with a credit card company will be worthwhile, responsible, higher quality cardholders. Credit will flow easier. On the other hand, when anyone can get a card we see run ups in debt, defaults, and ultimately foreclosures and other things that COST a lot more than higher rates on plastic.
Also, in principal, why shouldn't credit cards be allowed to charge high rates? People use credit because they don't have the money. A very simple solution is to NOT BUY something when you don't have cash. This does two things: 1 - it prevents you from getting in debt, 2- it keeps money in your pocket. This is definitely not a COST for consumers. In my opinion credit should be last resort. Maybe high rates will make it so it is more that way.
It also seems like you've forgotten that there are other means to get money. If credit cards are no longer attractive, then consumers who want to borrow will use other tools, like loans. Generally speaking, if a loan is a lower rate than what the credit card is charging, you'll see another COST SAVINGS.
Maybe if you could put some $ figures into the article, I'd be more convinced. Unfortunately, as it stands, I need a little more beef to be pursuaded.