Yesterday I wrote about the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, which places restrictions on the credit card industry. My article gave a basic outline of the Act, and in general gave some reasons why I support it. I think the credit card industry is intentionally convoluted and has built its business model on late fees, other fees, and interest rate hikes intended to keep credit card customers perpetually making payments.
I understand that customers are ultimately responsible for their debts and no one forced them to use the credit card or not make their payments, and I have no problem with the credit card companies being in the business to make money. However, some of their practices strike me as unethical.
Overall, I think the Credit CARD Act of 2009 is beneficial. But I am always wiling to listen to both sides of the argument, so I am publishing a comment left on yesterday’s article, and my response to the comment. I’d love to hear your comments either for or against the act.
Why the Credit CARD Act of 2009 is Harmful
Kirk Kinder is a Certified Financial Planner and publishes the blog, Swim Upstream to Wealth. He recently wrote an article on his website about the Credit CARD Act of 2009: Government Credit Card Reform Will Hurt Responsible Customers. Yesterday he wrote the following comment on my article outlining the Act (emphasis mine):
I am a huge fan of transparency, but I don’t like the government getting involved in this for a few reasons:
- Shunning responsibility. It is just another example of us shunning personal responsibility and letting the government “save” us. If you don’t like 60 page credit card agreements with fine print, then don’t use them. If customers walked, then the industry would change.
- Unintended consequences. This will cause the companies to find new fees in other ways. More than likely, it will hit those folks who pay the balance each month. Annual fees, disappearing rewards programs, or shorter (or no) grace periods will become standard. Also, the folks who are irresponsible with their usage of the credit cards will find lower credit limits and higher interest rates from the get-go. It will pull credit out of the system. Just wait – two years from now the government will be back at the credit card companies charging them with not making credit as readily available as it once was.
- Subsidizing deadbeats. As mentioned above, the responsible card owners will end up subsidizing those who are fiscally challenged. This is not right…period.
- I hear how this will protect college students. You really have to wonder if college does much for students. Maybe degrees are over-rated. They are spending upwards of $40,000 for a college education (at a state school), but they can’t figure out that eventually they have to pay for that pizza they just bought with a credit card. Ignorance isn’t an excuse. This isn’t a hard concept to grasp, especially for someone at an institute of higher learning. I hate to be rude, but maybe you shouldn’t spend $40,000 on a college degree for someone who can’t figure out that the pizza and beers aren’t free when you put them on plastic. Besides, if you are treated as an adult in the eyes of the law, then you shouldn’t have to get Mommy or Daddy to co-sign for you. College is there to teach life lessons. Either they learn quickly to use credit wisely, or they come out of college and learn the lesson the hard way. Plus, do we think that a college student will graduate and suddenly use credit wisely. Do they shed their ignorance at 22. I find most people really get into trouble with credit once they have good paying jobs where they can get a great deal of credit.
- The government is just pandering for votes. They figure if they can say they got tough with the banks regarding credit cards, we will forget they gave the banks billions. Or, that they authorized the bonsues at AIG.
Hate to be so cynical, but this is really a ridiculous waste of time and money. If they really want to make a difference, then teach personal finance in the schools.
Why I support the Credit CARD Act of 2009
Kirk, Your arguments are well thought out and bring up serious issues, many of which I agree with:
- (1.) As I mentioned in yesterday’s article, personal responsibility is the key and we should never forget that.
- (3.) I also don’t believe we should subsidize deadbeats, and I have a hard time with that point. But the difference is that the government isn’t bailing out credit card customers or credit card companies (yet). Also, credit cards rewards programs have already been declining over the last couple years, well before this bill was in place.
- (4.) I also don’t agree with the government placing age restrictions on credit cards. I think that if you can enter a legal contract, join the military, or vote (all age 18), then you should be able to get a credit card. Using a credit card responsibly can be a good method of building high credit score, which is important in our society.
Why the Credit CARD Act of 2009 is needed: The biggest issues I have with the credit card industry are the lack of transparency in the credit card industry and that credit card companies are not currently held to any standards other than the standards they set within the industry. Here are the topics I think are the most important in this Act:
- Universal default. I understand the credit card companies’ excuse for this practice, but this practice unjustly hurts many customers. It can send borrowers into an endless spiral of added interest and fees – which is exactly what the credit card companies want. They don’t want people paying on time, they want people perpetually paying interest and fees and as little principal as possible.
- Standardizing due dates, billing notices, and requiring free online/phone payments. Some companies will charge late fees if the payment is received after 10am on the due date, regardless of when their mail arrives (mail arrives in the afternoon in most places). Is that fair? What about sending the bill to the customer less than two weeks before it is due, knowing full well that it might take a full week to get to the customer. I received a bill today (Wednesday) that is due next Tuesday. With Monday being a holiday, I can’t mail it for fear it will be late. I paid online, but some companies still charge for online payments or telephone payments. It’s actually cheaper and more efficient for them to handle online and telephone payments, but some credit card companies charge because they can.
- Over the limit fees. Yes, customers should keep track of how much they have spent, but credit card companies are all too quick to allow them to charge more than their limits because they can charge $39 over-the-limit fees each time they do it. Once upon a time a credit card was refused when the limit was reached. Then the lenders discovered how easy it was for people to forget and for them to charge hundreds of extra dollars in fees. Consumers should have the right to turn that feature off.
The Credit CARD Act of 2009 is not perfect. I don’t agree with some aspects of act, and all of Kirk’s points are valid. But the credit card industry thrives on confusion, changing rates and agreements without warning, and charging usurious fees. None of the aspects of this bill will break the credit card companies, but they might just give some customers the break they need to end the cycle of debt they are in. The final responsibility lies with the credit card holder, but the Credit CARD Act of 2009 gives them a more level playing field.
What are your thoughts?