Dodd Pushes Bill to Freeze Credit-Card Interest Rates

Has Chris Dodd heard about "an unintended consequence"?

According to Bloomberg,

"Senate Banking Committee Chairman Christopher Dodd said he will introduce a bill today to freeze interest rates on existing credit-card balances before a federal law takes full force."

Credit card issuers across the board have already jacked up the rates to stratosphere in anticipation for a new federal law (CREDIT CARD ACCOUNTABILITY RESPONSIBILITY AND DISCLOSURE ACT OF 2009, signed into law on May 22, 2009) which is supposed to regulate the credit card industry to "protect consumers".

So now Chairman Dodd wants to freeze these higher rates in order to protect consumers? How would that constitute a protection? Is this some kind of cruel joke? Or doublespeak, where "protection" means "extortion"?

The damage is already done for consumers by passing this Act. Now Dodd's bill will probably make things worse, as the recent government actions are any indication. So much for "protecting consumers", which is the mantra for every government legislation.

Tweet

Exclusive Credit Card From Barclays Bank

Even before the credit card bill was formally signed into law in late May but more so since, credit card companies have been furiously cutting the existing customers' credit limits, raising fees, raising APRs, sometimes cancelling the cards altogether, just when the U.S. consumers can use extra help to get through the tough times that are getting tougher. This bill has joined so many others in creating "an unintended (but very predictable) consequence". (I sure hope that it was indeed "unintended", but I may be too naive.)

But no, not at Barclays Bank. One of my friends got this invitation to apply for their exclusive card.

BLACK CARD. The World Awaits.

It claims to be the world's most prestigious and versatile credit card. The features include:

• Limited membership


• 24-hour concierge Service


• Exclusive rewards program


• Luxury gifts


• Patent pending carbon card


• Annual fee $495

APR is variable at 13.24%, and it has one feature that hardly any other credit card issuers offer these days: Maximum fee on balance transfer of only $50. The norm these days for balance transfer fee is 3 to 5% of the transfer amount, with no maximum.

If they charge $495 annual fee, they can be gracious and charge only $50 for your balance transfer, I suppose. But this annual fee of almost $500, I've never seen anything like this before, not even during the bubbly late 1990s or mid 2000s.

(What's with "carbon card"? Does Barclays Bank want us to think this card is capturing "carbon" therefore it is so "green" to carry this card?)

Tweet

Unintended (and Predictable) Consequences

Credit card reform bill

• Intention: To protect consumers from "unfair and abusive" practices by credit card companies.
  
• What many consumers are already getting: Notice from credit card companies for increased rates and fees, reduction of borrowing limit, or outright cancellation.
  
• What all consumers will eventually get: higher rates across the board, regardless of their spending and paying habits.

Federal Reserve's decision to buy longer-term Treasuries

• Intention: To keep the interest rates on longer-term loans low.
  
• What's happened: Fed becoming the buyer of last resort. 10-year and 30-year Treasury yields have gone up.
  

Bank "Stress Test"

• Intention: To restore public confidence
  
• What's happened:
  - The test itself, and the test results are perceived as joke or worse.
  - Has helped banks to raise capital at a much higher level, which has made investors more suspicious of the test's intention.

The White House and Congressional outrage over AIG bonuses

• Intention: To show that they share the outrage by average citizens over excessive compensation by an entity on life support with taxpayers' money
  
• What's happened:
  - Initially it was working, until the word got out that AIG may have been used to funnel tens of billions of dollars to the US and foreign banks. The sheer size of AIG bailout ($170 billion) started to get more attention, too.
  - The punitive 90% tax rate proposed by Congress for AIG employees who received bonuses was perceived as setting a dangerous precedent.

Chrysler's bankruptcy/restructuring

• Intention: To restructure Chrysler into a viable, competitive business; to protect US workers [=UAW workers] and keep the jobs in the US.
  
• What's happened so far:
  - Fiat is getting a free lunch with no money down.
  - 1st-lien secured bond holders got half of unsecured claim holders (totally ditching the bankruptcy law).
  - Investors will be wary of investing in any troubled US company receiving any form of US government aid.
  - It looks more and more like Chapter 7, not 11. Chrysler and soon-to-be bankrupt GM are shutting down their dealerships which will result in job loss and bankruptcies.
  - GM says it will import cars made in China.

I hope they were at least "unintended".

Tweet

Credit Card Bill Passed the Senate

Senate votes to limit credit card rate changes (AP via Yahoo Finance):

"The Senate voted on Tuesday to prohibit credit card companies from arbitrarily raising a person's interest rate and charging many of the exorbitant fees that have become customary -- and crippling -- to cash-strapped consumers.

"The overwhelming bipartisan vote of 90-5 was lawmakers' way of telling Americans that they haven't been forgotten ..."

We haven't been forgotten. That's comforting to know, I suppose.

"If enacted into law as expected, the credit card industry would have nine months to change the way it does business: Lenders would have to post their credit card agreements on the Internet and let customers pay their bills online or by phone for free. They'd also have to give consumers a chance to spare themselves from over-the-limit fees and provide 45 days notice and an explanation before interest rates are increased."

?? What kind of credit cards are people using?? I can see the card agreements on the net, I pay all my card bills online, for free, for several years now.

But take a look at the post below, about San Francisco wanting to add cigarette butt tax to discourage people from bad behavior - smoking. Isn't irresponsible use of credit card a very, very bad behavior? Don't they need to punish that behavior by stiff fees and higher interests?

Oh never mind. I correct myself. If the private industry does that, it is predatory and profitting from card holders' economic plight.

Coupled with the news that the government is going to put more restriction on TARP repayment, the bank stocks are not doing too well today. Not too bad, but struggling to remain unchanged for the day. As of 11:28 am PST, among credit card issuers, only Citigroup is up:

• Citigroup (C) up 18 cents (4.9%)
• JP Morgan Chase (JPM) down 61 cents (1.64%)
• Bank of America (BAC) down 5 cents (0.43%)
• Wells Fargo (WFC) down 94 cents (3.45%)
• Capital One (COF) down 91 cents (3.5%)
• Discover Card (DFS) down 31 cents (3.36%)
• American Express (AXP) down 80 cents (3%)

And card transaction processors:

• Mastercard (MA) down $3.88 (2.2%)
• Visa (V) down $1.40 (2.1%)

Tweet

Obama To Take Aim at Credit Card Abuses

This from cnbc.com. The president now wants to crack down on "deceptive" credit card industry practices.

[quote]"We need to do things to stop the marketing of credit in ways that addict people to it," Summers said in an interview on the NBC television talk show "Meet the Press." [end quote]

So credit cards are like packs of cigarettes?

[quote] The meeting comes as lawmakers have vented anger that banks with big credit card operations charging high interest rates and fees are the same institutions getting government bailouts from U.S. taxpayers who use these credit cards. [end quote]

That's the mantra these days: how dare they, when they are getting bailout money from taxpayers!

I wonder if this is going to be popular, just as bashing executive bonuses at a government-bailed insurance company was popular for a while.

Tweet