Congress may accelerate start date for credit card act

As banks and credit card companies race to raise rates and fees on credit card holders, they are angering not only the public, but also the Congress. In fact some elected officials are so unhappy with the credit card companies that they may introduce a bill to accelerate the effective date of the bill from Feb. 22, 2010 to Dec. 1, 2009.

Unfortunately for most credit card users that won't help much. The damage is already done given the significant hikes in rates and fees we've already seen. If Congress truly wanted to maintain the status quo for credit card holders, it should have mandated an immediate freeze on interest rates and fees. Even by the time the bill had passed credit card interest rates and fees had jumped dramatically. They started to go up as soon as the Federal Reserve tightened rules.

The Federal Reserve gave banks 18 months to implement the changes. Congress shorted that by six months to Feb. 22, 1010. I don't know why anyone is surprised that the credit card companies, which pushed for even longer lead times, would rush to change the terms on credit card holders.
The CARD Act is not the first governmental attempt to make changes to the credit card industry. United States lawmakers and judges have had mixed success in using laws, regulations, and court rulings to change the industry and protect consumers. Have these changes been helpful, or have they caused more harm than good?

Bill Hardekopf, CEO of Low sent me this excellent review by e-mail of some of the governmental laws, regulations and court cases that have shaped the credit card terms that we have today. In some cases I've added some comments about the status of the issue prior to the change in law.

* Truth in Lending Act (1968): Requires uniform method for calculating the cost of credit and publicizing credit terms, including the APR, so consumers can compare credit offers. The advertised terms must actually be available. It bans the unrequested issuance of credit cards, restricts cardholder liability for unauthorized use, requires fair and timely resolution of credit card billing disputes, and puts a $50 limit on cardholder liability for unauthorized charges. (Prior to this ruling, credit card issuer mailed active credit cards out in mass mailing. This created problems with identity theft and fraud for consumers.)

* Fair Credit Reporting Act (1970): Protects consumers against incorrect or misleading information in credit files maintained by credit-reporting agencies. Credit bureaus must investigate disputed charges and correct the incorrect charges. If the disputed charge cannot be resolved, the consumer can request the inclusion of their side of the story. Amended in 1996 to regulate collection, dissemination and use of consumer information. (Prior to this act credit bureaus pretty much ignored consumers complaints about their credit histories.)

* Fair Credit Billing Act (1974): Gives cardholders the power to fight improper credit card charges. Mandates how creditors are to respond to billing errors. Accounts must be handled promptly and fairly. (Prior to this law change consumers experienced various levels on assistance straightening out charge problems. Now at least there is a required standard.)

* Equal Credit Opportunity Act (1974): Prohibits discrimination in credit transactions. Requires creditors to grant credit to qualified individuals without a co-signature by the spouse. Credit histories on jointly held accounts must be maintained in the names of both spouses. Requires that issuers must provide in writing the reasons that credit was denied. Credit card applicants must be notified within thirty days if the loan has been approved or not. If the application is not approved, the issuer must give the applicant reasons for the decision in writing. (Prior to this act women often were left with no credit history after a divorce if all their credit was jointly held with their husbands because credit bureaus generally kept records only on their husbands).

* Fair Credit and Charge Card Disclosure Act of 1988: Requires that applications that are solicited by phone, sent through the mail or any other way made available to the public contain the key terms of the contract. These must include information about rates, fees, grace periods, etc.

* Fair and Accurate Credit Transaction Act of 2003: Created to address the growing problems with identity theft. Credit and debit card receipts may not include more than the last five digits of the card nor the expiration date. Gives consumers the right to get a free credit report each year from the big three reporting agencies. Increases the accuracy of credit reports and established national standards in regulations of credit reports.

In addition to key laws, two key court rulings changed the way credit card companies could do business. Both cases ended up costing consumers a lot of money. Here are brief summaries of the impact of these significant court rulings:

* Before 1978, 37 states had usury laws that capped rates and fees on credit cards. At that time, the rate for most cards was about 18%. Two court cases invalidated these usury laws and opened the door to the high rates and fees that we have today. These ruling have given issuers the freedom to charge default rates that can be over 30%, $39 late fees and 5% balance transfer fees. In Marquette National Bank vs. First of Omaha Service Corp in 1978, Marquette held that national banks could charge credit card customers the highest interest rate allowed in the bank's home state, instead of the customer's home state. As a result, major banks moved to states such as South Dakota and Delaware because these states had no usury ceilings on interest rates and they could export these rates to the other states.

* Smiley vs. Citibank in 1996: In 1996, the Supreme Court ruled that credit card companies could lift the cap on fees which, like interest rates, used to be regulated at the state level. Late fees were $16-$20 before Smiley. Now, they are as high as $39.

As you can see the courts have primarily sided with the banks and allowed interest rates and fees to jump dramatically.

Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Improving Your Credit Score."
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