The WSJ recently reported that Senate Banking Chairman Chris Dodd has been taking note of all of the complaints of recent credit card interest rate hikes (like Wells Fargo’s 3% interest rate increase) and newly added annual fees and is now proposing a bill that would place an immediate freeze on all credit card interest rates. The one thing that Chris Dodd seems to be conveniently forgetting is that the reason that many banks are raising rates and levying fees is because of the new credit card legislation that Dodd and his cohorts have long championed: the Credit Card Accountability, Responsibility, and Disclosure Act (CARD) (which recently had its start date moved up from 2/1/10 to 12/1/09).
While there are measures in the CARD act that are certainly good things that will help consumers like making credit card agreements easier to understand and forcing card issuers to be more transparent in their marketing the largest negative aspect of the bill is that most of the regulations make it much harder for many consumers to get credit and in turn do more harm then good.
Consider this: many people are outraged that Bank of America has begun to charge annual fees to some of its customers but yet the BOA credit card division has lost HUGE amounts of money for the last 5 quarters in a row! The unfortunate and unintended (hopefully unintended as you can just never tell what is going through the minds of most politicians) consequence of the CARD act is that:
A) The government sets restrictions on rate increases and fees that the card issuers can charge to cardholders (even if the rate increase or fee is deserved because the cardholder makes late payments or doesn’t take some personal responsibility [GASP!] to manage credit responsibly).
B) The credit card companies are forced to deny credit to many people who would have previously been eligible for a credit card (and cancel credit cards, reduce current lines of credit, decrease rewards, etc).
C) Decreased access to credit hurts struggling families and has an aggregate negative effect on the economy as a whole.
Like it or lump it that is the sequence of events. If you read the White House fact sheet outlining CARD you will notice that even the White House admits that, “Americans need a healthy flow of credit in our economy” and certainly the aims of the credit card reform as outlined by the White House fact sheet are in fact great goals BUT as is typical of politicians did the final CARD act that was signed into law actually accomplish these objectives?
- The White House Credit Card
- White House Black Market Credit Card
- Virgin Atlantic White Credit Card
- Negative Information
- BOA’s Credit Card Business is Losing Money Yet Still Catching Flak
- Why is it harder to get a credit card than an auto loan?