This article is a joint post by Matt Jabs and guest author Kevin Bowen, a content writer for RESQdebt.com
Actual aid or just another form of welfare?
Should Congress speed up the credit card reform legislation that they passed earlier this year?
That’s a question under consideration on Capitol Hill at this time, with important implications for those in credit card debt. A bill dubbed the Credit Card Rate Freeze Act, introduced by Banking Committee Chairman Chris Dodd (D-CT) seeks to expedite the credit card reform legislation known as the CARD Act (of which he also authored.)
- The bill was passed by the U.S. House of Representatives on a vote of 331-92.
- The legislation has been blocked in the Senate, thereby keeping the sweeping credit card reforms passed in May from going into effect on December 1st, 2009.
Dodd was dumbfounded when the Senate froze his Freeze Act, saying this:
“Consumers obviously have a responsibility to spend within our means and to pay what we owe. We bear that responsibility. But the credit card industry as well has a responsibility to deal with their customers honorably. There is nothing honorable about what’s happened with these significant rate increases and fees. Most importantly, they don’t have a right to rip off American families, especially when the Congress has already gone on record opposing the very actions they’re engaging in,” Dodd said on the Senate floor.
This will provide us a window of about 12 weeks between now and around the first of February, during this holiday season, to just put a stop to these outrageous rates and fees being charged to people.
Ninety colleagues here voted for the bill this spring. Why wouldn’t you join us today?”
In the short term the legislation promised to:
- stop random interest rate increases and universal default on present balances
- tighten over-the-limit-fees
- force banks to use proportional interest and penalty fees
- mandated periodic reviews that can lead to rate reductions
These short term promises leave many wanting, and wondering if the bill will actually do more harm than good in the long run.
Why expedite the bill?
Advocates such as Rep. Carolyn Maloney, D-N.Y., pushed the bills accelerated passing as a way to cut down on some of the questionable policy changes credit card companies have adopted in preparation for the bill. According to news reports, some credit card companies are meeting the new legislation with higher fees, raised interest rates, account closures, and other measures taken by the banks to limit their exposure. According to a recent Rasmussen Reports survey, half of Americans have seen an interest rate hike in the past six months.
“Card companies have redoubled many of the abusive practices that brought Congress to pass my original reforms last spring. Rather than use the time – time they asked for – since the bill’s signing in May to prepare for the changes, they’ve raised rates and fees with absolutely no regard for the dire position of millions of their customers,” said Rep. Carolyn Maloney, D-N.Y., who sponsored the original legislation.
With passage, these provisions would have moved into effect Dec. 1, 2009. While some of the legislation is already in effect, there is evidence that some lending institutions are already having trouble meeting compliance deadlines as they exist in the original bill. An expedited procedure would simply increase pressure on institutions that are already struggling to get ready.
Why was it froze by the Senate?
Implementation is the hard part, according to Congressional testimony from Federal Reserve Chairman Ben Bernacke – companies must adopt new policies, systems, procedures and even new written language that it presents to customers. The chairman also noted that problems could fall particularly hard on small and local banks, which often are relying on the same companies to help them make the upgrades.
Creditors must make extensive changes to their systems and business models in order to comply with the Credit CARD Act,” he said.
In a Federal Reserve survey of 57 American credit institutions and 23 foreign-owned institutions with American operations, 75 percent of banks did not expect to reach compliance until February 2010. This possibly points to the troubles these institutions are facing in being ready, particularly if it were on an expedited December schedule.
John Carney of the New York Times had this to say:
At first glance, Dodd’s proposals look like pragmatic attempts to relieve the tough economic problems faced by ordinary Americans. Unfortunately, the unintended consequences of the proposals may wind up creating even worse problems.
Mr. Dodd’s new proposals are guided by good intentions. But he and other lawmakers need to look to the future and see where that particular road may lead.
Carney argues that Dodd’s CARD Act, Freeze Act, and other sweeping legislation are too meddling while simultaneously slowing economic recovery and allowing for fraud of the increased welfare programs.
Is the damage already done?
Is Dodd’s bill too little too late? If Congress was going to teach the banks a lesson, shouldn’t they have either froze rates in May with the original bill, or perhaps refused to grant so much bail out money to the industry?
Remember the Rasmussen Reports poll referenced earlier that said half of all U.S. cardholders have already seen their rates increase since the C.A.R.D. Act legislation was passed earlier this year?
“Knowing that the Credit CARD Act would finally protect consumers from these abuses, the industry has tried to make one last grab for their customers’ pocketbooks,” Dodd, D-Conn., told the Senate on Wednesday.
“The reason we allowed a gap period between the passage of the legislation and the imposition of the regulations or the statutory requirements was because the industry came to me and said, you know senator, we’re going to need some time to administer, to change how we provide these kinds of benefits to people. So would you give us a little window here to operate?” Dodd said.
What do you think?
While it appears to be beneficial, American’s have many reasons to be wary of more regulations. Is the damage already done? I mean… what more can the credit card banks do that they haven’t already done, with or without the passing of this Credit Card Rate Freeze Act?
Should the government further entangle themselves in matters of economics, or should they leave well enough alone?