That credit card bill.
That is, the legislation.
As someone who is precisely one tax refund (I hate you, post office) check away from being out of credit card debt (credit card debt, yes, all debt, no, thank you Vanderbilt price tag, but I'm getting there), I'm more than a little amused that now a big ol' whack-load of consumer-friendly credit card legislation is on its way. But, eh, I'd rather be out of the debt than bailed out by a bunch of random provisions, certainly.
That said, I'm not entirely sure how I feel about the bill overall. There are some things about which I say "Yeah, sure, I think that's fair," and then there are others where I just think, "Look, if people are really that stupid and irresponsible, let them fiscally Darwinize themselves."
To wit (details of the bill from CNN):
Retroactive rate hikes: Both bills ban hikes to interest rates on existing balances. So say you carry a $1,000 balance at 8%. If the rate on your card changes, the new rate will apply only to new purchases going forward-the issuer won’t be able to start charging 19% on the previous balance. The only catch: If you fail to comply with a debt repayment workout plan or if you are more than 30 days (House bill) or 60 days (Senate bill) late on payments, all bets are off. What’s more, both bills prevent issuers from raising your interest rate during the first year of the card account.
I think this is perfectly reasonable with the possible exception of the last sentence. If you get a card and then go out and act like an idiot with it the first month you have it, then I see no reason you shouldn't have the rate jacked up. Other than that, though, the issuer is making a judgment call based on your creditworthiness, and if they make a faulty judgment, they shouldn't be able to call a mulligan and apply it to everything you've already charged.
Penalty periods: If you are late and your rate goes up, the Senate bill states that if you pay your bill on time for 6 months in a row, you can reclaim the lower rate.
This rewards good debt behavior, so yes.
Advance notification: Time was, your issuer could jack your card’s rate and only give you 15 days notice. No more. Both bills require that issuers must give you 45 days notice before making significant interest rate, fee and finance charge increases.
Eh, I dunno. What's the difference between two weeks and six weeks, here? If your rate goes up your rate goes up. You either have options or you don't. This one just seems like red tape.
Teaser rates: Both bills require that promotional rates must be offered for at least six months.
No. If I want to extend incentives why should I be forced to extend them for a particular period of time. So long as the terms of the incentive are clear and legal, I don't really understand this. The customer has the duty to read the provisions and, from that, then has the ability and right to say, "Capital One giving me 2% interest for a month? That's not worth it!"
That said, don't most teaser rates already last at least six months, anyway?
Payment allocation: You may have a balance transfer on your card at one rate, while other purchases or balances accrue interest at a different, higher rate. Before this legislation, banks could apply your payment to the balance with the lowest interest rate first-so your more costly balance just kept racking up interest. Now, payments in excess of the minimum amount owed must first be applied to the balance with the highest interest rate first, and then to remaining balances in descending order.
You know, as a gut consumer reaction I thought this was pretty awesome. But let's really think about it. The "theory" behind debt-shifting is that you have a high interest rate debt that you shift to another card so that you can then pay off the debt rather than default because you can't keep up with the interest/payments. Okay, yes, I know that's not the true mental process of every debt shifter out there, but that's the way it's supposed to be. You aren't just shopping the rate so that you can park the debt burden, like an unwieldy SUV in someone else's parking lot.
So having the more costly balance rack up interest generally means that people who understand how these things work will complete a balance transfer and then not use the card anymore. Which is kind of the goal. You got your Get Out of Jail Free Ticket with the lower-rate balance transfer. Now get out of debt. Pay off your balance. Don't just keep charging more on top of it.
With that said, are there people out there who "didn't know it worked that way" who then had a $25 Applebee's dinner sitting on a card at a 19% APR while the rest of the 4.99%, $15,000 balance was paid down. Sure there are. Was that information readily available in the credit card agreement, all over the issuer's website, etc.? Yes. Yes, it was.
The reason I "thought this was awesome" at first was because I remembered all those times I wanted to use my Amazon.com credit card to buy some books and earn reward points, but couldn't, because the card had a low-interest balance transfer on it. Poor me. Let's pass legislation so that I can get my triple rewards points and charge books to my credit card when I'm already in debt. Yes.
Due dates: Credit card statements must be mailed 21 days before the bill is due, up from the current 14. And no more odd timing deadlines for payments-payments received by 5 p.m. on the due date are on time. Payments with due dates that fall on holidays or weekends must be accepted by the next business day.
The timing deadlines, sure. This one is pretty silly. I had one card that required payment by 9 a.m. on the due date, another that was 11:30 a.m. (no joke), etc. Statement mailling I'm kind of ambivalent on, especially with most issuers going to paperless statements anyway. You should know when your bill is due, but it also shouldn't be that big of a deal to get a statement out three weeks before the due date. The part about holidays and weekends: At first I thought, "Grow up, people. If you forget to pay any other bill until OMG THE DAY IT IS DUE and that day is a holiday, then you shouldn't have waited until the day the payment was due." But then what's the point of it being a "due date" if you're secretly expected to pay it the day before. I always autodraft and pay early, so I had to think of some other circumstances. For me, if payday falls on a holiday, I get paid the day before. If my electric bill is due on a holiday they bump it to the day after. I think I can see this if the card issuer has given you no way to make your payment due to the fact that it's a holiday/weekend, e.g., some issuers can't draft payments from bank accounts on bank holidays, etc.
Over-the-limit fees: Before, if you tried to charge above your credit limit, the issuer would approve the transaction and slap you with an “over-the-limit” fee. Now, consumers must opt in for over-the-limit approval-and the fees that come with it.
Sure. I'm okay with this. Opt-in or opt-out, either way. The point of a limit is just that. It's a limit. The limit doesn't mean much if it doesn't actually limit anything. Sure, it's a person's responsibility to keep up with where their limit is and how much is on the card, but consider the situation where someone double-swipes a card for a big purchase that bumps the transaction over the card limit. Wouldn't it be a lot better for that to come back declined and to catch the error then than to have the purchase go through twice and cause a bunch of hassle and over-limit fees. So let the responsible users opt-in or opt-out, either way.
Cards for young adults: The House bill stipulates that banks can’t issue cards to un-emancipated minors under the age of 18 unless a parent is the account holder. It also limits college students to just one credit card, sets credit limits to a percentage of the student’s income and requires parents to approve increases to credit limits on joint accounts. The Senate bill takes it even further, eliminating credit cards for people under the age of 21 unless an adult co-signs or they can show proof of income.
I'm not sure about this one. Under 18, sure, totally fine. But the under 21 part -- my gut reaction is the age-old, "So an 18-year-old is mature enough to join the military, but not to buy beer or get a credit card." But on the other hand, you know, while I was in college, the credit card issuers sure were pushing the plastic hard.
And yet...I was seventeen when I started college and, even when I turned 18, knew not to sign up for any of the predatory "here, have a free t-shirt" cards. I had credit cards at that time, three of them, in fact, all issued in my name without any input from my parents. And I kept them all paid off, too -- just used them as a convenience tool since debit cards were just taking off at the time. This was exceptionally helpful for things like buying books and supplies while I waited for my financial aid checks.
It wasn't until I was 22, over the age of "credit consent," that I actually carried a balance on the credit card I'd already had for three years. Today I still have those three cards I opened when I started college, all with zero balances, flawless payment histories, and $20k+ limits. Manual underwriting and the Altar of the Almighty FICO aside, those three cards have helped establish a long and responsible credit history. I don't regret opening them at all, a decision I made at barely 18 years old.
So if I was so perfect, what about the debt I have? Age had nothing to do with it; circumstances did. While I was in college I didn't need anything I couldn't pay for immediately. And temporarily putting aside the true adage that if you can't afford it, you don't need it, when I was in law school I didn't have the same resources I'd had in undergrad. Every bit of my credit card debt was accumulated in a space of four years, none of which were years that I was under 21 or in college. (Additionally, most of the times I've been stupid-drunk occurred when I was over, not under, 21.)
Maturity and education are far more indicative than age. I'd be more okay with this one if it simply required people under the age of 21 to take some form of responsible lending class before being approved.
Gift cards: The House bill doesn’t touch them, but the Senate bill states that gift cards can’t expire in less than five years. Retailers selling Visa, MasterCard, American Express or Discover-branded gift cards will have to print information on dormancy fees-charged when the card goes unused for a while-right on the cards themselves.
A number of states have already begun passing similar laws; I've no problem with this at all.
Universal default: Both bills eliminate this practice, which allows a card issuer to raise your rates if it learns that you were late on another card.
You know, if the defaulted card is held by the same card issuer/bank, I really don't see the problem with this. I might be missing it, though. But if I'm late on my Discover card because I'm paying on my Visa instead, then yeah, jacking up the rate on the Visa is counterproductive.
Account closings: The Senate bill doesn’t address it, but the House bill requires an issuer give you 30 days notice before it closes your account.
If you've breached a card agreement then, no, I'm not sure any notice should be required. But if the account is being closed due to dormancy, then yes, notice is perfectly reasonable.
As someone who is precisely one tax refund (I hate you, post office) check away from being out of credit card debt (credit card debt, yes, all debt, no, thank you Vanderbilt price tag, but I'm getting there), I'm more than a little amused that now a big ol' whack-load of consumer-friendly credit card legislation is on its way. But, eh, I'd rather be out of the debt than bailed out by a bunch of random provisions, certainly.
That said, I'm not entirely sure how I feel about the bill overall. There are some things about which I say "Yeah, sure, I think that's fair," and then there are others where I just think, "Look, if people are really that stupid and irresponsible, let them fiscally Darwinize themselves."
To wit (details of the bill from CNN):
Retroactive rate hikes: Both bills ban hikes to interest rates on existing balances. So say you carry a $1,000 balance at 8%. If the rate on your card changes, the new rate will apply only to new purchases going forward-the issuer won’t be able to start charging 19% on the previous balance. The only catch: If you fail to comply with a debt repayment workout plan or if you are more than 30 days (House bill) or 60 days (Senate bill) late on payments, all bets are off. What’s more, both bills prevent issuers from raising your interest rate during the first year of the card account.
I think this is perfectly reasonable with the possible exception of the last sentence. If you get a card and then go out and act like an idiot with it the first month you have it, then I see no reason you shouldn't have the rate jacked up. Other than that, though, the issuer is making a judgment call based on your creditworthiness, and if they make a faulty judgment, they shouldn't be able to call a mulligan and apply it to everything you've already charged.
Penalty periods: If you are late and your rate goes up, the Senate bill states that if you pay your bill on time for 6 months in a row, you can reclaim the lower rate.
This rewards good debt behavior, so yes.
Advance notification: Time was, your issuer could jack your card’s rate and only give you 15 days notice. No more. Both bills require that issuers must give you 45 days notice before making significant interest rate, fee and finance charge increases.
Eh, I dunno. What's the difference between two weeks and six weeks, here? If your rate goes up your rate goes up. You either have options or you don't. This one just seems like red tape.
Teaser rates: Both bills require that promotional rates must be offered for at least six months.
No. If I want to extend incentives why should I be forced to extend them for a particular period of time. So long as the terms of the incentive are clear and legal, I don't really understand this. The customer has the duty to read the provisions and, from that, then has the ability and right to say, "Capital One giving me 2% interest for a month? That's not worth it!"
That said, don't most teaser rates already last at least six months, anyway?
Payment allocation: You may have a balance transfer on your card at one rate, while other purchases or balances accrue interest at a different, higher rate. Before this legislation, banks could apply your payment to the balance with the lowest interest rate first-so your more costly balance just kept racking up interest. Now, payments in excess of the minimum amount owed must first be applied to the balance with the highest interest rate first, and then to remaining balances in descending order.
You know, as a gut consumer reaction I thought this was pretty awesome. But let's really think about it. The "theory" behind debt-shifting is that you have a high interest rate debt that you shift to another card so that you can then pay off the debt rather than default because you can't keep up with the interest/payments. Okay, yes, I know that's not the true mental process of every debt shifter out there, but that's the way it's supposed to be. You aren't just shopping the rate so that you can park the debt burden, like an unwieldy SUV in someone else's parking lot.
So having the more costly balance rack up interest generally means that people who understand how these things work will complete a balance transfer and then not use the card anymore. Which is kind of the goal. You got your Get Out of Jail Free Ticket with the lower-rate balance transfer. Now get out of debt. Pay off your balance. Don't just keep charging more on top of it.
With that said, are there people out there who "didn't know it worked that way" who then had a $25 Applebee's dinner sitting on a card at a 19% APR while the rest of the 4.99%, $15,000 balance was paid down. Sure there are. Was that information readily available in the credit card agreement, all over the issuer's website, etc.? Yes. Yes, it was.
The reason I "thought this was awesome" at first was because I remembered all those times I wanted to use my Amazon.com credit card to buy some books and earn reward points, but couldn't, because the card had a low-interest balance transfer on it. Poor me. Let's pass legislation so that I can get my triple rewards points and charge books to my credit card when I'm already in debt. Yes.
Due dates: Credit card statements must be mailed 21 days before the bill is due, up from the current 14. And no more odd timing deadlines for payments-payments received by 5 p.m. on the due date are on time. Payments with due dates that fall on holidays or weekends must be accepted by the next business day.
The timing deadlines, sure. This one is pretty silly. I had one card that required payment by 9 a.m. on the due date, another that was 11:30 a.m. (no joke), etc. Statement mailling I'm kind of ambivalent on, especially with most issuers going to paperless statements anyway. You should know when your bill is due, but it also shouldn't be that big of a deal to get a statement out three weeks before the due date. The part about holidays and weekends: At first I thought, "Grow up, people. If you forget to pay any other bill until OMG THE DAY IT IS DUE and that day is a holiday, then you shouldn't have waited until the day the payment was due." But then what's the point of it being a "due date" if you're secretly expected to pay it the day before. I always autodraft and pay early, so I had to think of some other circumstances. For me, if payday falls on a holiday, I get paid the day before. If my electric bill is due on a holiday they bump it to the day after. I think I can see this if the card issuer has given you no way to make your payment due to the fact that it's a holiday/weekend, e.g., some issuers can't draft payments from bank accounts on bank holidays, etc.
Over-the-limit fees: Before, if you tried to charge above your credit limit, the issuer would approve the transaction and slap you with an “over-the-limit” fee. Now, consumers must opt in for over-the-limit approval-and the fees that come with it.
Sure. I'm okay with this. Opt-in or opt-out, either way. The point of a limit is just that. It's a limit. The limit doesn't mean much if it doesn't actually limit anything. Sure, it's a person's responsibility to keep up with where their limit is and how much is on the card, but consider the situation where someone double-swipes a card for a big purchase that bumps the transaction over the card limit. Wouldn't it be a lot better for that to come back declined and to catch the error then than to have the purchase go through twice and cause a bunch of hassle and over-limit fees. So let the responsible users opt-in or opt-out, either way.
Cards for young adults: The House bill stipulates that banks can’t issue cards to un-emancipated minors under the age of 18 unless a parent is the account holder. It also limits college students to just one credit card, sets credit limits to a percentage of the student’s income and requires parents to approve increases to credit limits on joint accounts. The Senate bill takes it even further, eliminating credit cards for people under the age of 21 unless an adult co-signs or they can show proof of income.
I'm not sure about this one. Under 18, sure, totally fine. But the under 21 part -- my gut reaction is the age-old, "So an 18-year-old is mature enough to join the military, but not to buy beer or get a credit card." But on the other hand, you know, while I was in college, the credit card issuers sure were pushing the plastic hard.
And yet...I was seventeen when I started college and, even when I turned 18, knew not to sign up for any of the predatory "here, have a free t-shirt" cards. I had credit cards at that time, three of them, in fact, all issued in my name without any input from my parents. And I kept them all paid off, too -- just used them as a convenience tool since debit cards were just taking off at the time. This was exceptionally helpful for things like buying books and supplies while I waited for my financial aid checks.
It wasn't until I was 22, over the age of "credit consent," that I actually carried a balance on the credit card I'd already had for three years. Today I still have those three cards I opened when I started college, all with zero balances, flawless payment histories, and $20k+ limits. Manual underwriting and the Altar of the Almighty FICO aside, those three cards have helped establish a long and responsible credit history. I don't regret opening them at all, a decision I made at barely 18 years old.
So if I was so perfect, what about the debt I have? Age had nothing to do with it; circumstances did. While I was in college I didn't need anything I couldn't pay for immediately. And temporarily putting aside the true adage that if you can't afford it, you don't need it, when I was in law school I didn't have the same resources I'd had in undergrad. Every bit of my credit card debt was accumulated in a space of four years, none of which were years that I was under 21 or in college. (Additionally, most of the times I've been stupid-drunk occurred when I was over, not under, 21.)
Maturity and education are far more indicative than age. I'd be more okay with this one if it simply required people under the age of 21 to take some form of responsible lending class before being approved.
Gift cards: The House bill doesn’t touch them, but the Senate bill states that gift cards can’t expire in less than five years. Retailers selling Visa, MasterCard, American Express or Discover-branded gift cards will have to print information on dormancy fees-charged when the card goes unused for a while-right on the cards themselves.
A number of states have already begun passing similar laws; I've no problem with this at all.
Universal default: Both bills eliminate this practice, which allows a card issuer to raise your rates if it learns that you were late on another card.
You know, if the defaulted card is held by the same card issuer/bank, I really don't see the problem with this. I might be missing it, though. But if I'm late on my Discover card because I'm paying on my Visa instead, then yeah, jacking up the rate on the Visa is counterproductive.
Account closings: The Senate bill doesn’t address it, but the House bill requires an issuer give you 30 days notice before it closes your account.
If you've breached a card agreement then, no, I'm not sure any notice should be required. But if the account is being closed due to dormancy, then yes, notice is perfectly reasonable.