On Thursday, President Obama announced support for a new bill aimed at protecting credit card holders.
As early as next week, House Democrats expect to act on a bill that would make it harder for the industry to slap new fees and rates on cardholders while also requiring clearer disclosure of the costs and risks for cardholders. The bill would codify and expedite rules already proposed by the Federal Reserve Board, rules that would not be implemented until 2010.
Legislation pending in the Senate would go further, barring lenders from imposing interest rate increases on existing balances.
As usual with these things, the specifics will be hashed out in Congress. But the credit card companies are already warning that new restrictions will inhibit their ability to provide credit in these tough times. And Republicans are calling Obama a hypocrite for going after credit card companies when his own policies are unfairly heaping debt onto the American public.
I do not doubt that some credit card companies knowingly participate in ethically questionable business practices. But, in my mind, the central problem isnâ€™t that new fees are created without warning or that finance charges are applied without explanation, but that too many of these companies actively exploit consumers by handing out credit to those without the means of paying off debts and by creating too-good-to-be-true offers which are designed to fool consumers into making bad decisions. Even for savvy credit card holders with good habits, picking through the small print on a new offer can be a frustrating and confusing undertaking. Itâ€™s no surprise some people end up with massive bills, choked with unaffordable finance charges.
Iâ€™m not sure what the appropriate government solution to these problems would be. Transparency in credit card offers would be a good start. No more advertising 0% finance charges for 18 months while hiding the fact that being late on one payment by one day will cause you to lose the deal and end up with 20-something percent in finance charges.
After that, Iâ€™d support some form of initiative that holds credit card companies partially liable for extending credit to consumers who clearly lack the means to pay off debts. Thatâ€™s a subjective matter, so the issue would probably need to be handled through bankruptcy court. But creating some form of shared liability would help prevent cases of blatant exploitation.
Obviously, credit card companies need the freedom to earn profits and wastrel consumers shouldnâ€™t be protected from their mistakes. But I do believe there is an unhealthy imbalance between credit card companies and their consumers. As always, I fear Congress will overreach and/or focus on the wrong aspects of the problem, but Iâ€™m not upset that the matter is being considered.