A Brief Summary of the Proposed Credit Card Reforms

Those of us in the consumer finance and credit education world continues to rejoice at the news that credit card issuers are being investigated for their unfair fee and rates policies. The current panel hearing led by Senator Carl Levin is asking some long overdue tough questions! Not to be mean spirited, but it is nice to see the credit card issuers sweating a little bit about having to explain their treatment of consumers!

There are a lot potential reforms being tossed around in relation to this senate hearing. A group of consumer advocacy organizations including Consumer's Union and USPIRG, issued a press release calling for the following:

• Banning the Universal Default Clause
• Limits on credit card fee amounts and frequency
• Requiring creditors to verify repayment ability for new customer
• Limits on marketing to students and teens
• Limits on the amount creditors can collect in bankruptcy filings
• Ban on retroactive interest rate increases
• No more "any time, any reason" rate change policies
• Policy change to accept payments as on time by postmark date instead time received
• Stop roll-over of over-limit fees from month to month
• No over-limit fees for transactions approved by the credit card issuer
• Clarification of "invitation to apply" offers that imply pre-approval.
• Simplification of pricing disclosures
• Add a minimum payment warning on credit card statements
• A ban on introductory and teaser rates
• Improved "Schumer's Box" disclosures
• A ban on mandatory arbitration agreements

Whew! That is a long list and full of some really good reformation ideas. In addition to these proposed changes, I'd also like to see these reforms:

• Limits or better disclosure of foreign currency conversion fees (often a whopping 3%).
• Clearer consumer rights and terms for credit card rewards and miles
• An end to the policy of mailing credit card customers "blank" checks unless specifically requested
• Mandatory accurate reporting of credit limits to the credit bureaus (Capital One, I'm looking at you)
• Clear disclosures about how payments are applied when you have a special promotional balances and a regular balance on your credit account
• Changes to credit scoring formulas to stop penalizing consumers when they canceling credit card accounts. This would lead to more consumer negotiation power

What other reforms would you like to see enacted? Share your ideas in the comments section below.

Comments

[dana hinks]

had card with chase, never paid any bills late, on card or any other bill. raised my rate to 29% because i didnt use the card for 12 months. never notified of increase. this should never happen.

[Hardas K Kripalani]

I’d like to see following additional credit card reforms:

1) Credit card agreements be subject to the laws of the State in which the borrower resides and not the State of issuer’s choosing.
2) Changes to credit scoring formulas to stop penalizing consumers for even hard inquiries with CRAs. This improperly penalizes consumers who want to shop around for car loans or mortgages. It also improperly penalizes consumers who applied for such financing but want to get out upon discovering some fishy or underhanded practices.

[Noah_Bodie]

There is one single act which would do more to bring credit card company behavior into line with what I believe most of us would want, and that one act is a federal usury law. Usury laws were effectively neutered with the 1978 Supreme Court decision in Marquette.

MARQUETTE NAT. BANK v. FIRST OF OMAHA CORP., 439 U.S. 299 (1978)
http://laws.findlaw.com/us/439/299.html

It was all downhill from there. A federal usury law would protect all consumers in all states so banks wouldn't get the urge to up and move to a state where the banks contribute heavily to legislators in order to get a 40 percent usury limit. Think South Dakota and Delaware. Citibank moved it's operation to South Dakota in 1981 once usury laws effectively went away.

A federal usury law could tie the max credit card rate to inflation or prime so as the economy boomed or busted the rates would follow accordingly.

[Noah_Bodie]

FICO scoring allows for what are called "de-duplication windows" for home loan and car loan inquiries. You can apply through a bunch of lenders when buying a home or a car, and all inquiries coded alike (as a car or home loan inquiry) are counted as one inquiry. If you incur 27 inquiries while car shopping, it counts as just one inquiry. I believe the FICO window is 45 days.

These make sense and permit the consumer to "rate shop" so you can get the best deal possible when buying a car or a home. So why not apply a de-duplication window to credit card inquiries?

You shop around for a car or home loan so that you get the best deal possible. Same is true of credit card inquiries. You could apply for 15 cards, get approved for 6, decide which are the 3 best and cancel the other 3. The credit card companies might then start getting better response on those pre-approved credit card apps in the mail.