May the Odds be in Your Favor...

 May 20 (Bloomberg) -- President Barack Obama would sign legislation to curb credit-card fees even if it contains a provision allowing visitors to U.S. national parks to carry guns, White House spokesman Robert Gibbs said today.

The Senate passed the credit-card measure yesterday. The House of Representatives has begun debating the measure and is scheduled to hold a final vote today...

The Democrat-led Congress is intent on sending to President Obama's desk the legislation that would impose sweeping restrictions on credit card companies in the name of consumer protection. Considering the large number of moderate Democrats in the House, the bill is expected to pass intact when it comes for a vote Wednesday.

What does this mean to you & me. WE the responsible get to pay for the irresponsible. More benefits for the knuckle heads whom get into contractual arrangements without knowing all the facts. Since when was ignorance of the law permissible & WHY do WE have to subsidize stupidity.

Anything we can do about. How will this effect the availability of credit. Can WE take advantage of it. This I believe will open a market for the growth of Social Lending / P2P Lending.

Obama is expected to sign the bill into law. Treasury Secretary Timothy Geithner on Tuesday said the bill would "create a more fair, transparent and simple consumer credit market."

"This is a time when millions of consumers are already facing lower credit limits and higher interest rates on their credit cards because of decreasing credit availability and continued economic instability," he said. Also opposing the bill were GOP Sens. Lamar Alexander of Tennessee, Robert Bennett of Utah and Jon Kyl of Arizona.But their voices were drowned out by lawmakers who said their offices had received dozens of complaints from voters.

"We said that big banks can no longer take advantage of hardworking Americans," Reid said of the Senate vote.

Senate Banking Committee Chairman Christopher Dodd, D-Del., on Wednesday brushed aside talk that credit will be more scarce if Congress approves the bill.

Calling Tuesday's Senate vote "a great day for consumers," Dodd also said people still must handle their money responsibly and pay their bills on time. But he also said the measure was "a long time coming, a long time overdue."

Dodd said any assertion that credit will be hard to get is absurd, "a little like Chicken Little."

Under the new bill, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance.

Even then, the lender would be required to restore the previous, lower rate after six months if the cardholder pays the minimum balance on time.

Consumers also would have to receive 45 days' notice and an explanation before their interest rate was increased.

FOX News' Chad Pergram and the Associated Press contributed to this report.

 « The Moral Hazard of a State Bailout | Main  | Will Japan Be Canada? »

May 20 2009, 12:34 pm by Daniel Indiviglio

Credit Card Companies: Mean vs. Evil

I love getting all these comments on my credit card piece from earlier, even if many disagree with my argument. So let me elaborate: I'll be the first to agree that some credit card companies play some despicable games and need some reform.

I could tell you stories about some card companies I visited when I was a banker and consultant that would make your skin crawl. I once had my own problems with American Express acting extremely shady (which is why I will never use one of their cards again - that's my power as a consumer). As a result, I fully agree that deceptive practices should be forbidden. I did not mean to imply otherwise. I believe many of the provisions having been suggested are good, especially those that require better disclosure. I just worry some go too far and will make credit cards harder to get and more expensive.

First, don't forget that the credit that we're talking about is unsecured. It's not like an auto loan where you can repossess the car or a mortgage where you can foreclose. Chances are, if you decide not to pay a credit card balance, the card company will end up taking a substantial loss on it - more substantial than it would take with a secured loan.

Because of that high risk involved, it's important for credit card companies to be able to dynamically alter their terms and conditions, or else their risk models won't be able to accurately protect the money they lend. Without that dynamic nature, they will have to treat the credit line as a loan for the full value of the line, just in case. That will result in higher rates and more fees in general, since they need greater protection. Is that preferable? Maybe to some, but probably not to people who pay their bill every month.

My chief concern, and point, was to explain that by trying to make credit card laws "fairer," Congress will merely price many borrowers with poor credit out of the market. I believe that those borrowers should have the option of receiving a credit card if they qualify for one with more aggressive policies - so long as they know what they're getting themselves into. (So yes, more transparency is important and desirable.) Otherwise, the card companies simply won't be able to afford to do business with them. This is particularly problematic for consumers with bad credit who want to improve their credit going forward, which having a credit card with aggressive terms would eventually help with if they use it responsibly.

One final note: the ultimate power has always lied in the hands of consumers, who can simply choose not to use credit cards if they don't like their practices. That's how a free market works - eventually companies will have to change their practices if they want your business.