New Credit Card Law Takes Effect

The new credit card legislation that goes into effect today was designed to help consumers from unscrupulous business practices on the part of banks. And while the new regulations offer some improvement for consumers, as usual, it falls short of truly offering consumer protection.

One big shortfall of the new legislation: there is no interest cap. Legislators claim this was a compromise. My question is, a compromise with whom? Because banks base the interest rates on the prime rate PLUS a percentage, I would like to know why that number couldn't be capped? I suspect the compromise had to be with banks or the lobbyists. Who else could oppose a cap?

If the legislators themselves are in opposition to protecting American consumers against rate gouging, I suggest they get out of office, as it is clear they are not there on our behalf. In my opinion, there is no reason any company should be able to charge 25%, 26%, and 27% interest on consumer credit, but they do. This is tantamount to loan-sharking. And often, it's college-age kids or those with poor credit that get raped with these kinds of rates. Any consumer being charged these kinds of outrageous rates has no hope of ever paying off the balance as it continues to accrue day by day.

Banks can also start charging annual fees or non-usage fees if they want. By allowing these types of loopholes, the law simply becomes a shell game for the banks. They will just find new ways to stick it to the consumer. Long before the legislation was enacted they were working on strategies to get around the law. The economic collapse of our country can be placed squarely on the shoulders of big banks.

Yes, there are positives to the legislation. For example, starting today if you transfer a balance at a lower, introductory rate but you already have an existing balance on your account only the minimum payment will automatically be applied to the balance with the lower rate. In addition, any amount over the minimum payment will be applied to the balance with the higher interest rate. This is good news for consumers.

In the past, if you had a balance on your credit card and transferred an additional balance over to your account at a lower rate, all payments would pay down the lower rate first while the balance with the higher rate would continue to compound.

Another piece of the legislation that works in the consumers' favor is that banks can no longer raise rates within the first year the account is opened. They also cannot raise rates arbitrarily on an account just because you missed or were late on a payment on another.

Much like during and after the Depression, I think this recession is going to have lasting repercussions for big banks. Their own irresponsible, greedy, and in some case malicious behavior is going to come back to bite them. It may take some years before consumers are financially in a place for it to happen, but once consumers can get on their feet the backlash will be swift and severe.

Even after the huge taxpayer (yes, big banks, don't forget that) bailout, they went right back to business as usual, continuing to payout huge bonuses, raise rates on consumers arbitrarily, and reduce credit lines for good customers who had never been late on their payments. Essentially, they spit in the eye of every American taxpayer.

Banks that make an effort to treat their customers fairly and with respect will be the ones that survive. Big banks that have forgotten that without customers they have nothing will be the first to go. And they will have no-one to blame but themselves. When they fail, I think there will be a lot of smug taxpayers watching them go down in flames with smirks on their faces.