Credit Card Reform

Credit Card Reform – Creditors Fight Back

Wed, Jul 22, 2009

I’ve come across a few articles lately related to the credit card reform so I thought I would open a discussion about this and provide some thoughts. I have a strong opinion against the abuse of credit cards and the actions some credit card companies take in the pursuit of money, so I’ll try not to turn this into a rant (at least not too much).

What would have been cool

I read a recent article in Money Magazine that talks about “what would have been cool” related to the reform. It’s certainly a good step, in my opinion, to see our government take some action to put some controls around interest rate and fee abuse by these companies. Apparently, the new rules don’t go into effect until February of 2010. And as you would expect, the credit card companies now have plenty of time to increase fees and start taking away some of the perks they offer to entice people to sign up (sounds good to me).

Downside to the credit card reform

That’s certainly a downside to the reform considering America is in trouble right now with credit and debt. As Americans are learning to be more frugal given the economic impacts on American families, we see a nasty stench of greed exposed from these actions. The credit card companies are making up for the revenue they’ll lose. The article goes on to tell us we can probably expect rates to increase for new purchases as well as fee hikes.

I recently worked with some Money Map coach participants who unfortunately filed chapter 13 bankruptcy (the kind with a debt adjustment and not liquidation) a few years ago. A similar problem occurred in their situation. As soon as the credit card companies got wind of their bankruptcy actions, they piled on the fees leaving them with more debt to deal with in the long run.

I think it’s absurd these companies would do this to people. And yes, I do think the late and no payers have a large responsibility to adhere to their commitment. But, they shouldn’t be punished with unethical measures.

Creditor perspective

Another article from MSNBC “Senate Passes Credit Card Reform Bill” provides startling creditor perspective.

Bankers warned the measure would restrict credit at a time when Americans need it most. They defended their existing interest rates and fees on grounds that their business — lending money to consumers with no collateral and little more than a promise to pay it back — is very risky.

Duh! Yes, it is risky and that’s why they shouldn’t be lending to people who have no means to pay. So because of these actions, we have economic issues and this leads to reform! Credit card companies shouldn’t have been surprised to see this coming and shouldn’t beat up on consumers who are trying to find their way in today’s economy.

The solution – pay credit cards off each month

There is one simple solution to these issues and that is don’t spend more on a credit card than you can pay off each month. I’m fine with having a credit card, but when it’s used to spend for expenses outside of the family budget, you’re looking for trouble. And in these times and with unethical credit card companies, trouble isn’t far away.

What do you think about the credit card reform and some of the actions credit card companies are taking right now?