Sen. Chris Dodd (D-CT) blogged at the Huffington Post on his Credit Card Reform Bill intended to: “stop abusive and deceptive credit card practices once and for all.” If it passes, the Bill would, among other things, do the following:
— End universal default (the practice of using information unrelated to payment performance in connection with a particular credit card to raise rates and lower credit limits in connection with that card.)
— “Any Time, Any Reason” interest rate hikes.
— Penalty Rates With No End. Specifically, the Bill says that: “after 6 months of on time payment, your rate has to go back down.” But it is silent about the amount of the penalty rate the Card Company can assess. Since companies are assessing penalty rates in and around the 30% annual rate range, six months of payments at such a rate would mean that the debtor, provided they could carry the debt, would be paying nearly twice the amount of their debt in interest alone.
— Double-Cycle Billing. This is the practice of charging customers interest on a loan amount for two months, even though they’ve paid off some part of the loan amount at the end of the first month.
— Aggressive Marketing to Young People. The Bill says: “that credit card companies must take into account a young person’s ability to repay before allowing them to take on what is all too often a lifetime’s worth of debt.”
The comments on Dodd’s post were almost uniformly negative, reflecting massive distrust of both Sen. Dodd and Congress. And no wonder, even though the Bill is certainly an improvement over the entirely ridiculous, oppressive, and unconscionable credit card regime we have now, it still doesn’t end the usury in credit card lending that both Congress and the Banks have been complicit in creating over the past quarter of a century or so. Sen. Dodd will not save his Senate seat with half measures like these, because three core “reforms” that would really bring a new day are not in this bill.
First, credit card lending has to be geared to the prime rate, so that companies will have to pass monetary stimulus from the Federal Reserve through to the consumer, rather than pocketing it for their own profit. It is criminal that credit card companies are allowed to charge even 10% when their own borrowing rate is close to zero. The rate should not exceed 6 points over prime and should be set by law as the usury limit. Second, penalties for late payment should again be limited to flat penalty fees. The credit card companies should not be allowed to impose higher penalty rates for late payment at all. And third, credit card companies should again be made subject to Bankruptcy Laws in the United States. The idea that they should have any privileges at all relative to other creditors, is, and always has been, odious and unfair. The legislation that allowed these companies a pass in Bankruptcy, was passed based on a naked exercise of political power by the credit card industry. Well, Senator Dodd and other House and Senate Democrats, times have changed. Cowboy Capitalism is no longer king. Start acting like Democrats again, and quit giving special privileges to predatory lenders, so working people can begin to restore that American Dream you’re always talking about.