I thought Credit cards were not a neccessity...

[mickeyd]

Once the camel's nose (read:federal government) gets under the tent, there is no stopping them.

Once TARP $ and Stimulus $ and any other named US federal $ gets factored into the process, you can be sure of only one thing: There will be a bunch of regulating going on and it will be extremely difficult to get that damn camel out of the tent.

To paraphrase a line in one of my alltime favorite flicks~ "I'm shocked! Shocked! That there's federal intervention in this industry."

 

[JOHNNIE36]

I think the convenience of the credit card makes it a worthwhile item. I carry three. One is my bank debit card which I use 80% of the time for purchases. DW used Master Card for her major purchases as she doesn't like the hassle she gets with the AMEX card (lot of stores do not honor it). I use AMEX for the remaining 20% of my purchases, and I carry a Master Card to supplement where places don't take AMEX. Why these cards? Because I hate to carry a lot of cash. Easier to lose, get wrong changed and makes your wallet too fat. Never carry more than $50 in cash. I like the extra warranty that some cards provide on purchases and the 5% cash back on gas purchases thru AMEX is good. Always pay in full at end of month.
However, just signed a contract for some ceramic tile installation and in jockeying for a better price, agreed to pay cash to get a 10% discount. Three percent (3%) of this was the savings to the tile store for not using a credit card. And, they wouldn't accept AMEX regardless. However, I can see the abuse in credit cards. I see people in McDonald's get a burger and fries and run it through on a credit card. Just my thoughts.

 

[Gone4Good]

So now the govt is going to step in and tell a private business what they are allowed to charge for their services?

Well according to Wikipedia . . .

The First Council of Nicaea in 325, forbade clergy from engaging in usury

So it looks like the government has been telling lenders what they can charge borrowers for going on 1,700 years now.

With respect to credit cards, it seems to me that there are some abuses that should be rectified. As a starting point, consumer financial products should have pretty straight forward terms and conditions. It shouldn't take a law degree to figure out what the interest rate is, how it is calculated and what fees are applied. I've heard that CC companies made $15B in various fees last year (not including interested). Now I'm all for companies earning an honest buck, but $15B in fees on credit cards doesn't sound honest to me. It sounds more like a business practice of enticing folks to a card with promotional features listed in big print on the front and a host of restrictions and fees buried deep in the fine print. That cr@p should stop.

 

[W2R]

I neither have nor want a credit card, so this discussion is mostly irrelevant to me.

I do recall my father explaining interest rates to me when I was a little girl, back in the early 1950's. That included an explanation of what usury was and that usury is illegal. Maybe that was a state regulation of some sort, but complying with usury laws distinguished the criminal loan sharks from reputable loan companies.

 

[FinanceDude]

With respect to credit cards, it seems to me that there are some abuses that should be rectified. As a starting point, consumer financial products should have pretty straight forward terms and conditions. It shouldn't take a law degree to figure out what the interest rate is, how it is calculated and what fees are applied. I've heard that CC companies made $15B in various fees last year (not including interested). Now I'm all for companies earning an honest buck, but $15B in fees on credit cards doesn't sound honest to me. It sounds more like a business practice of enticing folks to a card with promotional features listed in big print on the front and a host of restrictions and fees buried deep in the fine print. That cr@p should stop.

Transparency should not be seen as an enemy. Remember when the Surgeon General got the LARGE letters saying how bad smoking was for you? Until the punitive cigarette taxes, people still smoked. Same as credit card companies, they could put their fine print in large print and it wouldn't have that big of an effect.

I don't like using credit at all, but I do from time to time. However, I pay it off in a matter of months. I had one company raise me from 7.9% to 29% with no reasons given. So, I dropped the card, and they seemed amazed and continue to placate me to "come back".........

 

[donheff]

1) You wouldn't get the low initial interest rate if credit card companies couldn't raise rates later on.

I don't care since I don't ever pay interest on CCs but those that do would probably forgo a point if the CC companies would act in an honest manner.

2) If someone stops paying credit card x, the risk to credit card y goes up. It's a reality. And as long as it's legal to do so, CC companies will price that risk accordingly.

Precisely, although I disagree completely with your use of the word accordingly. The idiots killed the goose because it WAS legal. But their victims will now make it illegal.

4) You may think that the credit industry should be run more like a charity, but it's a business. Your "good faith" efforts don't offer extra protections from the contractual obligations. You don't get extra consideration for trying hard, and when you earned your money, it probably had nothing to do with "good faith effort" and everything to do with output.

The CC companies are run like a lot of charities -- abusive admin fees and huge executive salaries.

If I lose my job, my rates (on existing debt) should not rise as long as I pay the minimum due on time, period, amen!

 

[FinanceDude]

IThe CC companies are run like a lot of charities -- abusive admin fees and huge executive salaries.

If I lose my job, my rates (on existing debt) should not rise as long as I pay the minimum due on time, period, amen!

I agree with you 100%

 

[armor99]

As I mentioned in my previous post, there is simply no amount of education we could provide to counter act the deceptive advertising the CC companies use.

Armor I urge you to read your credit card agreements (you save them for future reference right?) and then develop a lesson plan for a high school kid about understanding credit cards. Good luck

I think conservatives (and I generally consider myself one) put too much faith in a Laissez fair system.

So you believe that big businesses are so much smarter than everyone else? So much so that they have an unfair advantage over "the rest of us". Ok... let me do the unexpected here, and conceed the argument to you.

Let us assume that you are correct. It is not possible to educate people on credit cards, how to use them, how to stay out of debt etc. So the solution is to have the govt forcibly stop these busninesses from advertising, rather than the vain attempt to educate people how to take care of themselves?

I would think that would just make the problem even worse in the long run. The more people that do not have to think for themselves, because the govt is busy removing all sources of risk from their lives, it just will make people that much more depandant on the govt. for their needs. Is that really the direction that would be good to go? Where the govt needs to tell us what to do, and forbids us from doing certain things because we might not be smart enough to handle the responsibility? Would you be in favor of an intelligence test for getting a loan for example? I like risk in my life... it makes my life have meaning for me....

 

[armor99]

I don't like using credit at all, but I do from time to time. However, I pay it off in a matter of months. I had one company raise me from 7.9% to 29% with no reasons given. So, I dropped the card, and they seemed amazed and continue to placate me to "come back".........

What, you mean capitalism actually WORKED? As in they had a product or service that you were unhappy with, so you stopped using them? This is unheard of! Everyone knows we are not smart enought to DO things like that. Did the govt help you? Come on... confess... a govt guy called you up and told you to drop their service for your own good... (ok... could not help the sarcasm here....)

 

[donheff]

So you believe that big businesses are so much smarter than everyone else? So much so that they have an unfair advantage over "the rest of us". Ok... let me do the unexpected here, and conceed the argument to you.

Let us assume that you are correct. It is not possible to educate people on credit cards, how to use them, how to stay out of debt etc. So the solution is to have the govt forcibly stop these busninesses from advertising, rather than the vain attempt to educate people how to take care of themselves?

I don't think this is an accurate description of the situation. As Monty Python used to say, "No one expects the Spanish Inquisition." And no one (until recently, with all of the negative publicity) thought that it could be legal for a CC company to raise your interest rate on existing debt if you have never missed a payment. It just doesn't make sense. Once we understand the situation we are outraged and begin looking at everything these companies do with a skeptical eye. It makes more sense to me for the Government to intervene with rational regulations than to simply educate people that CC companies can legally abuse them. Credit is too important to the American way of life. If we go a little too far on the constraints - so be it. The market will point out our errors and we will swing back the other way a bit.

 

[donheff]

What, you mean capitalism actually WORKED? As in they had a product or service that you were unhappy with, so you stopped using them? This is unheard of! Everyone knows we are not smart enought to DO things like that. Did the govt help you? Come on... confess... a govt guy called you up and told you to drop their service for your own good... (ok... could not help the sarcasm here....)

Yeah, but the Dude was only able to dump them because he is one of us frugal types 90% of the population would be trapped with the higher rate because they couldn't afford to pay off the debt. Capitalism didn't really work here - or only partially worked. The CC company was just shocked that FD didn't fit their statistical model.

 

[FUEGO]

Yeah, but the Dude was only able to dump them because he is one of us frugal types 90% of the population would be trapped with the higher rate because they couldn't afford to pay off the debt. Capitalism didn't really work here - or only partially worked. The CC company was just shocked that FD didn't fit their statistical model.

You got that half right. FD is a responsible debtor that doesn't fit their statistical model. So he pays off the credit card using his funds on hand or a cheaper source of credit. Those with no other means of getting cheaper funds (ie those who are broke and can't get cheap credit elsewhere) are stuck paying a higher rate because they are more risky. So the system does work. People are smart - they seek the least costly method based on their individual abilities.

 

[donheff]

You got that half right. FD is a responsible debtor that doesn't fit their statistical model. So he pays off the credit card using his funds on hand or a cheaper source of credit. Those with no other means of getting cheaper funds (ie those who are broke and can't get cheap credit elsewhere) are stuck paying a higher rate because they are more risky. So the system does work. People are smart - they seek the least costly method based on their individual abilities.

Your premise is that the CC companies are really all about risk. I think they are all about rip-off. They didn't raise the rate on FD because he really presented a risk of non-payment (witness the fact that they are asking him back and probably offering to restore his original rate). They raised his rate because a technicality allowed them to do so and they assumed that not only would he continue to pay, but that he would pay MORE because he would have no other choice.

 

[clifp]

So you believe that big businesses are so much smarter than everyone else? So much so that they have an unfair advantage over "the rest of us". Ok... let me do the unexpected here, and conceed the argument to you.

Let us assume that you are correct. It is not possible to educate people on credit cards, how to use them, how to stay out of debt etc. So the solution is to have the govt forcibly stop these busninesses from advertising, rather than the vain attempt to educate people how to take care of themselves?

I would think that would just make the problem even worse in the long run. The more people that do not have to think for themselves, because the govt is busy removing all sources of risk from their lives, it just will make people that much more depandant on the govt. for their needs. Is that really the direction that would be good to go? Where the govt needs to tell us what to do, and forbids us from doing certain things because we might not be smart enough to handle the responsibility? Would you be in favor of an intelligence test for getting a loan for example? I like risk in my life... it makes my life have meaning for me....

I am quite sure that credit card come are able to hire smart lawyers who can write credit contracts which are best incomprehensible and at worst misleading implying X but actually mean Y when interpreted in a court of law. If you don't believe me read a CC agreement.

Call me a commie pinko, but I do believe that Government has a role in regulating the advertising business do. I am not particularly risk adverse, But I like to know that doctor or lawyer who claims he graduated from Harvard Medical/Law School risks government imposed penalties (Jail or fines) if in fact he never went there. The medicine I take actually has chance of curing my disease and doesn't just contain opium or alcohol to make me feel better. The used car that the salesman tells me has 30,000 actually was only driven 30,000 miles And oh yes the Card Credit with 12% interest actually charges 12%. If this reliance on Government serving as a referee makes as a weaker, stupider nation so be it.

 

[armor99]

I don't think this is an accurate description of the situation. As Monty Python used to say, "No one expects the Spanish Inquisition." And no one (until recently, with all of the negative publicity) thought that it could be legal for a CC company to raise your interest rate on existing debt if you have never missed a payment. It just doesn't make sense. Once we understand the situation we are outraged and begin looking at everything these companies do with a skeptical eye. It makes more sense to me for the Government to intervene with rational regulations than to simply educate people that CC companies can legally abuse them. Credit is too important to the American way of life. If we go a little too far on the constraints - so be it. The market will point out our errors and we will swing back the other way a bit.

The way I look at it... a company out of control makes huge profits, because that is what companies WANT to do. An out of control govt. gets HUGE control over the population, because by and large, that is what govts do. I do not put my complete faith in either of them, but I would much rather a company get richer, that a govt to have more power over me than it should. A company cannot FORCE me to buy something from them, but a govt sure can....

 

[FUEGO]

Your premise is that the CC companies are really all about risk. I think they are all about rip-off.

My premise is that CC companies are for profit entities that try to maximize shareholder returns. They implement this through a number of means, risk management and pricing rates based on risk. I think we disagree about what to call high fees, high interest rates, and variable interest rates - you call it a rip off, I call it the price that the market will bear. If one really has a complaint about unfair or deceptive acts or practices or outright fraud, well we have a well developed system of jurisprudence to redress those wrongs.

 

[Gone4Good]

A company cannot FORCE me to buy something from them, but a govt sure can....

Monopolies would do just that for any basic service . . . unless they're opposed by the power of the government.

Arguing either extreme is pointless, and kind of silly. Extreme government intervention is bad. No government intervention is anarchy (psst, that's bad too ). Just because the government is intervening in business practices doesn't mean it is extreme or even bad. One could credibly argue that the credit card practice of inducing people with a low interest rate only to raise it without notice later is very similar to the unlawful retail practice called "bait and switch". I'd wager most people are pretty comfortable with the government intervention that outlaws such deceptive retail practices.

It might help to review what the government is actually proposing to do and then someone can explain which piece of this you think is government overreach . . .

Key provisions of the Dodd-Levin bill include:

• Universal Default Prohibition. Prohibit credit card issuers from increasing interest rates on cardholders in good standing for reasons unrelated to the cardholder’s behavior with respect to the affected credit card.
• No Interest on Debt Paid on Time. Prohibit interest charges on any portion of a credit card debt which the card holder paid on time during a grace period.
• 45-Day Notice. Require 45-day notice to impose a higher interest rate.
• Higher Interest Rates Only for Future Debt. Require higher interest rates to apply only to future credit card debt, and not to debt incurred prior to the increase.
• No Interest on Fees. Prohibit the charging of interest on credit card transaction fees, such as late fees and over-the-limit fees.
• Restrictions on Over-Limit Fees. Prohibit the charging of repeated over-limit fees for a single instance of exceeding a credit card limit.
• No Pay-to-Pay Fees. Prohibit charging a fee to allow a payment on a credit card debt, whether the payment is by mail, telephone, electronic transfer, or otherwise.
• Fair and Prompt Crediting of Card Holder Payments. Require payments to apply first to the credit card balance with the highest rate of interest, and to minimize finance charges.
• Fixed Credit Limits. Require credit card issuers to offer consumers the option of operating under a fixed credit limit that cannot be exceeded.
• Interest Rate Decreases. Require card issuers to lower penalty interest rates imposed on cardholders after 6 months, if no further violations occur.
• Stopping Unfair and Deceptive Practices. Give each federal banking agency the authority to issue regulations prohibiting unfair or deceptive practices.
• Improved Disclosures. Require credit card issuers to disclose the period of time and total interest needed to pay off a card balance if only minimum monthly payments are made, and require other enhanced disclosures.
• Fair Billing Practices. Require credit card issuers to issue bills 25 days before the due date and accept payments postmarked one week before the due date.
• Protections for Young Consumers from Credit Card Solicitations.
  • Require card issuers soliciting persons under the age of 21 to obtain the signature of a parent, guardian, or other individual who will co-sign for the debt; proof the applicant can independently repay the debt; or proof the applicant has completed a certified financial literacy course.
  • Prohibit credit bureaus from furnishing credit reports for consumers under age 21, unless the consumer initiates the request. Allow consumers at least 18, but not yet 21, to choose to receive card solicitations.

 

[FinanceDude]

It might help to review what the government is actually proposing to do and then someone can explain which piece of this you think is government overreach . . .

Key provisions of the Dodd-Levin bill include:

• Universal Default Prohibition. Prohibit credit card issuers from increasing interest rates on cardholders in good standing for reasons unrelated to the cardholder’s behavior with respect to the affected credit card.

I am on board with that......

• No Interest on Debt Paid on Time. Prohibit interest charges on any portion of a credit card debt which the card holder paid on time during a grace period.

Again, no problem, a good idea.......

• 45-Day Notice. Require 45-day notice to impose a higher interest rate.

I would prefer 60 or 90 days, but ok........

• Higher Interest Rates Only for Future Debt. Require higher interest rates to apply only to future credit card debt, and not to debt incurred prior to the increase.

Makes total sense, otherwise its a regressive situation, so I like it.....

• No Interest on Fees. Prohibit the charging of interest on credit card transaction fees, such as late fees and over-the-limit fees.

CC companies make enough on the late fees, no reason to get greedy......

• Restrictions on Over-Limit Fees. Prohibit the charging of repeated over-limit fees for a single instance of exceeding a credit card limit.

Good idea........

• No Pay-to-Pay Fees. Prohibit charging a fee to allow a payment on a credit card debt, whether the payment is by mail, telephone, electronic transfer, or otherwise.

Time for these fees to go, with today's technology, payments are a breeze.......

Fair and Prompt Crediting of Card Holder Payments. Require payments to apply first to the credit card balance with the highest rate of interest, and to minimize finance charges.

Lukewarm on this one. Kinda nitpicky for the govt to state..........

• Fixed Credit Limits. Require credit card issuers to offer consumers the option of operating under a fixed credit limit that cannot be exceeded.

Like this a lot. Only problem is the credit bureaus would have to play along, as they are known for whacking people's credit when the utilization ratio gets too high. Under today's rules, having $6000 charged on 3 cards with a combined credit limit of $20,000 is WAY better than $6000 charged on three cards with a fixed limit of $9000, or $3000 each........

• Interest Rate Decreases. Require card issuers to lower penalty interest rates imposed on cardholders after 6 months, if no further violations occur.

A little nitpicky, I think 12 months is better.......

• Stopping Unfair and Deceptive Practices. Give each federal banking agency the authority to issue regulations prohibiting unfair or deceptive practices.

No problem with this........

• Improved Disclosures. Require credit card issuers to disclose the period of time and total interest needed to pay off a card balance if only minimum monthly payments are made, and require other enhanced disclosures.

Could of been doing this for the past 20 years..........

• Fair Billing Practices. Require credit card issuers to issue bills 25 days before the due date and accept payments postmarked one week before the due date.

Good idea, payment acceptance other than online billpay is a tricky deal.........

• Protections for Young Consumers from Credit Card Solicitations.
  • Require card issuers soliciting persons under the age of 21 to obtain the signature of a parent, guardian, or other individual who will co-sign for the debt; proof the applicant can independently repay the debt; or proof the applicant has completed a certified financial literacy course.
  • Prohibit credit bureaus from furnishing credit reports for consumers under age 21, unless the consumer initiates the request. Allow consumers at least 18, but not yet 21, to choose to receive card solicitations.

Don't like this, sounds too much like the 21 drinking age........

 

[armor99]

Monopolies would do just that for any basic service . . . unless they're opposed by the power of the government.

Arguing either extreme is pointless, and kind of silly. Extreme government intervention is bad. No government intervention is anarchy (psst, that's bad too ). Just because the government is intervening in business practices doesn't mean it is extreme or even bad. One could credibly argue that the credit card practice of inducing people with a low interest rate only to raise it without notice later is very similar to the unlawful retail practice called "bait and switch". I'd wager most people are pretty comfortable with the government intervention that outlaws such deceptive retail practices.

Ok.... agreed... You and I are probably not arguing on points that are too dissimiliar here. In my mind the perfect govt is the smallest one you can get away with... without anarchy. I do conceed that many of the regulations seem reasonable and prudent. The only thing I worry about is this may tend to push smaller credit card companies out of business. May no longer be worth it to some companies to stay in the game. Credit card companies may also decide to start charging yearly fees for their cards now, which is perfect legal for them to do. The cards I have at present have no fees.

In truth... if everyone used credit cards like I do... the companies would go out of business. I pay off my bills every month, and there are no yearly fees. So the credit cards make no money off of me directly.

 

[ChrisC]

The only thing I worry about is this may tend to push smaller credit card companies out of business. May no longer be worth it to some companies to stay in the game. Credit card companies may also decide to start charging yearly fees for their cards now, which is perfect legal for them to do. The cards I have at present have no fees.

Smaller credit card companies! You mean like Discover? If there ever was a poster child antitrust case for group oligopoly, credit card companies would be high on the list. The point of mentioning "monopolies", I suspect, but I could be wrong, is that there is no effective competition in the credit card industry when it comes to many standard terms like universal defaults, notices, arbitration, grace periods, interest on interest, etc. The only effective areas of competition in this industry dominated by a few players are annual fees, rates, and "affinity" rewards -- and that's more a function of branding than competition.

Credit card companies don't just make money from annual fees or interest charged on payments. They also make money off of people who use their credit card as a "charge card" like you, i.e. just paying the monthly balance off every month without incurring interest charges on the "revolving credit." The credit card companies charge merchants transactional fees for credit card purchases. And there are a few "charge card" companies that have survived many, many years, and they like you to think you can't go home without one of their charge cards.

 

[freebird5825]

...provisions of the Dodd-Levin bill include:

• Protections for Young Consumers from Credit Card Solicitations.
  • Require card issuers soliciting persons under the age of 21 to obtain the signature of a parent, guardian, or other individual who will co-sign for the debt; proof the applicant can independently repay the debt; or proof the applicant has completed a certified financial literacy course.
  • Prohibit credit bureaus from furnishing credit reports for consumers under age 21, unless the consumer initiates the request. Allow consumers at least 18, but not yet 21, to choose to receive card solicitations.

Don't like this, sounds too much like the 21 drinking age........

Thanks for the outline of the provisions, folks.
If I can assume the absence of a co-signer will prevent those under age 21 from racking up a mountain of debt and then "walking" under Rights of Minors laws, I'm all for this one. NY's age of emancipation is 21.
I have a personal interest in this one - dh2b has a minor son (17) and the boy has no clue of what money is all about except he whines and the ex merrily spends no matter what the price of the lollipop.
The good news is it does not affect our budget.

 

[FinanceDude]

Smaller credit card companies! You mean like Discover? If there ever was a poster child antitrust case for group oligopoly, credit card companies would be high on the list. The point of mentioning "monopolies", I suspect, but I could be wrong, is that there is no effective competition in the credit card industry when it comes to many standard terms like universal defaults, notices, arbitration, grace periods, interest on interest, etc. The only effective areas of competition in this industry dominated by a few players are annual fees, rates, and "affinity" rewards -- and that's more a function of branding than competition.

I'm pondering getting rid of my Discover card. While I like the rewards, more and more businesses are NOT taking it anymore, because they charge too high a transaction fee for the merchant.......

There are less "small" card companies all the time. Consolidation has been rampant. Pretty much all CC companies suck, some to a larger extent than others.

I am all for capitalism and free enterprise, but some business models need to be slapped around from time to time.......

 

[Gone4Good]

Credit card companies may also decide to start charging yearly fees for their cards now, which is perfect legal for them to do. The cards I have at present have no fees.

Yeah, I thought about this as a potential "downside". After all, my credit card company pays me to use it, to the tune of several hundred dollars per year. It's a pretty sweet deal for me. I get the convenience of the card, plus some pocket change too. I suspect that might change if new rules make it harder for card companies to earn extra revenue.

But on the flip side, if the benefits I'm getting from using my card are only available because some other poor sap is getting taken advantage of, then I'm OK paying full freight in exchange for having a more honest "market".

 

[clifp]

Key provisions of the Dodd-Levin bill include:


Fair and Prompt Crediting of Card Holder Payments. Require payments to apply first to the credit card balance with the highest rate of interest, and to minimize finance charges.


Lukewarm on this one. Kinda nitpicky for the govt to state..........

Actually this one is super important. Imagine Joe consumer takes advantage of 12 months 0% interest offer to buy a computer/big screen TV at Best Buy and signs up for store credit card. He dutifully makes the minimum payment each month and then 5 months later buys an iPhone. Joe had planned to buy the iPhone with cash, but he is informed by the sale person there is a extra $10 off if he use his Best Buy card so he does. Heeding dads advice he fully pays off his iPhone the next month. Only to discover that because payments go to the lowest interest balance first, he is on the hook for 20% interest on the iPhone until he pays off the entire credit card balance. Meaning the $10 off for using the card is actually going to cost $50 in interest payments, and oh by the way. The $10 off offer only was presented to Joe because Best Buy knew he had a 0% balance.

 

[donheff]

My premise is that CC companies are for profit entities that try to maximize shareholder returns. They implement this through a number of means, risk management and pricing rates based on risk. I think we disagree about what to call high fees, high interest rates, and variable interest rates - you call it a rip off, I call it the price that the market will bear. If one really has a complaint about unfair or deceptive acts or practices or outright fraud, well we have a well developed system of jurisprudence to redress those wrongs.

I don't substantially disagree with your underlying concerns or Armor's. But I don't see the fees in question as "what the market will bear." They are a tricky "gotcha." The market will bear reasonable rates and the buyers love some of the el-cheapo rates that are advertised. Unjustified jumps on existing credit are not part of the what people think they are bargaining for. I guess I would amend that to add that some subset of borrowers don't give a hoot about what the rates are -- just give me the dough. I don't think it makes sense for our society to legalize the abuse of those poor souls anymore than we legalize loan sharking -- it too is what the market will bear.