Advocates applaud changes to credit card regulations

Consumers get more protection

Friday, April 2, 2010

Click here to enlarge this photo Staff photo by EMILY BARNES Athena Miklos, a professor of economics and business at the College of Southern Maryland, thinks the government should have imposed even stricter regulations governing the extension of credit to young adults because she sees her own students crippling their futures with debt without understanding what they are doing. E-Mail This Article | Print This Story

On the surface, credit card transactions are the same as they ever were, requiring only a swipe and, sometimes, a signature.

But the Credit Card Accountability Responsibility and Disclosure Act of 2009, which took full effect Feb. 22, has changed the way credit card companies interact with customers in ways Congress intends will make using credit easier for consumers to understand.

Provisions in the law limit the circumstances under which card issuers can raise interest rates, require consent for enrollment in overdraft protection programs, limit overdraft charges and prohibit double-cycle billing, where customers might be charged interest on debt that had already been paid off, according to a White House news release and news reports. The law also requires that payments be due at the same time each month and severely restricts the marketing of credit cards to adults younger than 21.

Ballooning household debt made new rules necessary, according to Fielding Huseth, an advocate with Maryland Public Interest Research Group, an environmental and consumer-rights organization based in Baltimore.

He referred to statistics from the Federal Reserve Web site showing that outstanding public revolving debt, which is mainly composed of credit card debt, rose from $53.7 billion in January 1980 — $138 billion adjusted for inflation — to $864.4 billion this January, the most recent month for which data are available. However, revolving debt has been declining since September 2008, when it peaked at $975.7 billion.

Personal responsibility is not the only issue for those mired in debt because, before the Credit CARD Act, companies were using intentionally deceptive billing techniques, according to Huseth, including shifting the due date between billing cycles to trick customers into paying late, then slapping on fees and a higher interest rate when they did, Huseth said.

"It doesn't matter if the consumer has any aspect of the blame if the practice is intended to be deceptive, is intended to trick consumers into paying their balance one day late. Their deception shouldn't be tolerated and we just think a fair economy is one where credit card companies are acting and treating us consumers fairly," he said. "… Part of the problem is that even if you do look at it that way [as consumers' fault], the burden is ultimately being borne on the rest of society, and that's not fair. When the economy did crash because banks were acting recklessly, selling products they shouldn't, ultimately the taxpayers had to bail it out."

MaryPIRG is particularly heartened by restrictions on rate increases and a requirement that companies include, on credit card bills, the amount of time required to pay off the debt if only the minimum balance each month is paid.

"It's a good way for people to see visually what this means to them and how much debt they're in," he said.

The American Bankers Association has released a statement criticizing some aspects of the law. Restrictions will have the effect of reducing the availability of personal credit and make annual fees more common, the statement said. Also, card holders who have been responsible "will be subsidizing those who have not" through higher interest rates across the board assessed by companies that have lost some discretion in raising interest rates for delinquent clients.

"Susie with her lemonade stand understands this, but at the end of the day, for any business to be successful the money coming in has to be higher than the money coming out. If a new government law prohibits sources of revenue those revenues have to be made up somewhere else, by decreasing expenses or increasing revenues," said Nessa Feddis, ABA vice president and senior counsel. "… You have to remember the nurses' pension fund, the 401K holders who are account holders … want a return on their investment or they will go someplace else."

Bank of America spokeswoman Betty Riess said the bank has taken steps on its own to help its customers understand credit and did not, as some companies did, raise consumers' interest rates before the law came into effect.

"… Bank of America has been focused on responding to our customers' desire for clearer and more transparent information about their accounts," including launching a new card with one rate for all transactions, she said. "… Another thing we did, back in December, we sent a notification to our 40 million consumer credit card customers that, again, explains the impact of the CARD act. We also introduced our ‘card clarity commitment,' a one-page summary of each customer's rates, fees and payment information."

The bank will also follow up with new card holders to answer any questions and has launched a financial literacy Web site to help customers find answers on their own, she said.

Promoting credit savviness is "this informal personal goal" of Laura Bayless, "to try to educate students as much as I can about what it means to build good credit." Bayless, who is dean of students at St. Mary's College of Maryland, said the school has a longstanding policy prohibiting on-campus marketing of credit cards to students to protect them from their own inexperience.

Teenagers can be responsible consumers but many are uninformed about the consequences of their decisions, she said. She supports the new law, which prevents those younger than 21 from getting a credit card unless they have an older co-signer or can demonstrate their ability to repay the debt. It also prevents card companies from requiring a young person to fill out a credit card application in exchange for a free T-shirt or other gift.

"I don't think it's necessarily a bad idea not to allow 18-year-olds to have a credit card … I think the philosophy behind it is a good idea," she said.

Athena Miklos, a business and economics professor at the La Plata campus of the College of Southern Maryland, thinks the government should have imposed even stricter regulations governing the extension of credit to young adults because she sees her own students crippling their futures with debt without understanding what they are doing.

At the same time, she said older adults should know better and do not merit federal handholding in personal finance. In her analysis, the credit crisis has been driven by undisciplined consumers spending money they don't have.

"It feels like with the mortgage loans, people buying the McMansions all over the place and all of that going into the derivatives, that whole mess, everybody blames everybody but the consumer. … I'm kind of tired of that. The consumer has to take some responsibility for it. We cannot rely on the government taking care of us all the time. We go to school. People can read and write in the United States," she said.

She emphasizes personal responsibility but Miklos is not fan of credit cards. Easy access to consumer credit — and the high interest rates that accompany it — has a corrosive effect on the economy, and "I would all be for tearing them up and throwing them all away," she said. The ease of swiping a piece of plastic instead of handing over cash tricks consumers into feeling more prosperous than they are, while transaction fees devour retailers' profits, she said.

Retailers proposed new rules to reduce the cost of accepting credit cards but they were not included in the Credit CARD Act and are unlikely to be included in pending federal consumer protection legislation, according to Tom Saquella, president of the Maryland Retailers Association.

"Every time you use a credit card the retailer has to pay anywhere from 1.5 percent to 2 percent to [the credit card company], and that adds up to billions and billions of dollars," he said, and a retailer has very little leeway to negotiate more favorable terms with a card company.

"… We want some ability for the retailer to negotiate [fees]. A retailer can't be in business without accepting credit cards, [which are] about 60 percent of sales. It's very much a one-sided system," he said.