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Public Reaction to the Credit Cardholders’ Bill of Rights

This article was written by in Credit. 77 comments.


So the The Credit Cardholders’ Bill of Rights Act of 2009 (full details and timeline) passed the U.S. House of Representatives by a wide margin, indicating strong support from Republicans, Democrats and Independents alike.

Of the 427 Representatives who bothered to vote, 70 voted against it. So that’s about 84% in favor. I thought I’d take a trip through various parts of the Web to see how random groups of Americans felt about it.

Last August, CreditCards.com reported a survey which concluded that 74% of respondents agreed at least somewhat that “The government should regulate the credit card industry more carefully”.

A New York Daily News Poll which phrased the question as “Are credit card companies’ fees charges fair to consumers?” (which isn’t really what the Bill is about) found that 88% of respondents say “No.”

Over at OpposingViews.com, with only 250 votes so far, 75% of people think the Bill will help consumers.

A recent CNBC poll question: Do you think you have been unfairly treated by a credit card issuer? sees 67% responding “Yes”.

It’s not just Americans, either. A recent poll reported by the CBC in Canada says that 82% of Canadians want some kind of “bill of rights” to protect them when disputing unfair practices by the credit agencies.

It looks to me like the U.S. House vote is directly in line with what the public wants. I’m not sure I can tell you the last time I noticed that happening. If this topic is new to you, see what all the fuss is about.

Updated December 20, 2011 and originally published May 5, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 21 comments… read them below or add one }

avatar the weakonomist

I’m not in favor of increased oversight, but there is a lot in this bill that credit card companies should just be doing as good people. Sometimes the government does need to step in, once the CC companies learn it didn’t kill their business the govt should consider eliminating the rules to see if capitalism can now regulate them.

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avatar MyJourney

I am forced to wonder, when did a lot of the practices we are being “saved” from started? The modern CC was created in the 50s, were these practices in place since 1950? or are they new starting in 2004? Regardless, increased oversight always scares me, because it is never relinqueshed (e.g. TARP Money).

Additionally, anyone know why the 70 voted against it? Campaign money from Visa or a increased sense of too much regulation?

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avatar Dan

First, Smithee and Flexo, thanks for the great coverage of this legislation.

As far as oversight is concerned, I feel that this is an attempt for the informed to protect the poor and uninformed. Most of the people reading this website do not need this added governmental oversight. However, the majority of credit card users who keep balances and pay interest and other fees do not read (or do not follow) the advice given on this site and other helpful financial literature.

While the idea of credit cards appeared in the late 1800s as credit coins and charge plates, according to creditcards.com, the first major introduction of the plastic cards we know so well was the Diner’s Club card, circa 1949. From then on, America transformed from a citizenry who paid for everything with money they had or simply went without when they had no money to the credit-dependent society we are now. Instead of living the life we can afford, we live the life we want until our credit is maxed out. To a credit card company, the ideal cardholder never pays off his/her balance but rather continues making payments that ultimately will vastly exceed the original loan. At 20% interest, a credit card company would get it’s investment back in 5 years with the cardholder never having reduced the balance. Over the next 40 years, the credit card company would rake in an additional 800% of the amount loaned, and the cardholder would still owe the amount loaned.

Consider the business plan: companies (and individuals who created those companies and invested in them) that had money would lend poorer people money and act as if they were helping them live a better life. In actuality, their goal was to lend money today and receive more money over the next few months or years. It was a fantastic way for the wealthy to become wealthier with popular support from society.

We wouldn’t need oversight if consumers in general were smart about money. When I bought my house, my bank approved a $300,000 loan limit. Many people would see that and go out to buy a $300,000 home, I bought one for less than 1/2 of the limit. We are in an economic crisis today because the vast majority of the American public has proven that they are not very financially literate-because of this, companies take advantage of the public (sorry weakonomist, but the companies prioritize profits over being good people) while the public doesn’t know they are being taken advantage of. It wouldn’t be politically popular to institute an education program that explained to people that they should reduce their lifestyles because they cannot afford them, and teach them fully about the dangers of credit. In addition, this educational effort would mostly fall to blank faces, with retention of any true learning lasting little longer than when the student left the classroom. Instead, it is more politically popular to blame the companies and make legislation to help protect the ignorant.

End result: politicians (except for 70) win approval from their constituents, who will continue to live beyond their means but will feel better about it. I am not in favor of more regulation, but I do know that without it, the situation will worsen for the majority of American families. If some of my tax dollars can in any way help the poor and uninformed, I’m fine with that. But realistically, I know that the nation will continue it’s move to a 2 class society-those with money and those who owe money. Much like throwing a trillion dollars at the current economy will barely make a ripple, this legislation will not reverse the harm done by credit that has been ingrained into our society for the past 60 years.

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avatar Steve

While it’s true that credit cards have existed for a long time, it’s also true that many of these practices have sprung up in recent times. “Recent times” meaning, say, in the last year all the way to 20 years ago – which is a long time, but less than the 60+ years cards have been around. It seems like a kind of like a science experiment – they add new gotchas as they think of them and as they see what their cardholders will tolerate. And some of these tricks are honestly pretty bad, designed it seems solely to trick people into triggering higher interest, late fees, etc.

Also, I don’t think we should necessarily mourn the death of rebate programs. Money doesn’t come into existence out of nowhere(*) – these rebates come out of our own money, either in tricking us to spend more than we would have otherwise, or in higher prices from merchants. It’s kind of lame for us responsible ones, but for society it *might* be better.

(*) ok, technically it does, but for the purposes of this argument we can pretend it doesn’t.

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avatar tom

I think this is ridiculous. With credit cards you are borrowing money because:

A) At this moment you cannot afford whatever your charging and will pay it off (maybe) later

or

B) At this moment you can afford it, but don’t have that amount of cash on hand

A majority of Americans fall into category A. Because they are buying crap they cannot afford, credit card companies have to be regulated to help those people? We are, AGAIN, bailing out irresponsibility. They are choosing to use a credit card just like some people choose to borrow from a loan shark. If you don’t like the fees and the interest rates and all of the garbage… DON’T USE A CREDIT CARD or PAY OFF YOUR BALANCE!

This bill of rights will NOT help category B.

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avatar Andy

Couldn’t have said it better myself.

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avatar kitty

100% agree. In fact I think the bill will hurt category B: the credit card companies are experiencing losses now; they will need to offset losses and bring in more revenue which means that at best there’ll be fewer rewards and at worst we may get smaller or no grace periods or an annual fee.

As to the category A — there’ll just be fewer credit cards for them and higher interest rates upfront.

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avatar Daniel Drew

It is a great bill. The credit card companies prey on their card holders and legally there was nothing that could change that but an act of congress. And we got it. I am very happy this passed.

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avatar tom

@Daniel

Credit card companies do not prey on anyone. You chose to borrow money from them, you chose to sign up, you signed the terms of service, you legally allowed them to “prey” on you, but most of all, YOU CHARGED MORE THAN YOU COULD PAY OFF!

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avatar Luke Landes ♦127,475 (Platinum)

Tom: Your argument would be valid if [A.] the credit card companies would not change the terms of service at their arbitrary discretion, often without advance notice; and [B.] all people in debt found themselves in debt because they chose to charge more than they could pay off (for many people, credit cards are the only option to pay for unexpected massive expenses, like medical procedures or death). In response to your other comment, credit card companies have already massively scaled back their rewards programs. I expect that to continue regardless of whether the bill is passed. But credit card rewards programs don’t really reward the consumer, they encourage most consumers to spend more — and some use the rewards programs as an excuse to justify — like you said — spending more than they can afford. So the companies not only see increased merchant fees from increased use of their cards, but more people pay late and pay a lower percentage of their balances.

Whether with rewards or with arbitrary rate increases, the only winner in the end is the credit card company. The companies are not offering “rewards” to be nice or to “reward good financial behavior,” they offer them to make money.

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avatar tom

I just don’t buy that.

I agree that credit cards are a good way to pay for massive unexpected expenses, but that’s what an emergency fund is for. Few people are responsible enough to have that.

Yes, I will concede that medical expenses can max out cards, but do the majority of Americans who have thousands in credit card debt have medical procedures to be paid off? I would say no, most just bought too much stuff.

I will also concede that rewards programs have been scaled back, and that they are used to encourage consumer to buy more, but for consumers to hide behind rewards programs as an excuse to spend more is just plain irresponsible.

I’m not arguing that CC companies had the intention to be “nice” and reward good financial behavior, but I am arguing that’s how it can work if you are responsible.

Regardless of credit card companies “shady” practices, if you pay off your bill each month (extenuating circumstances aside) this bill doesn’t do anything for you.

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avatar kitty

In all fairness, I do understand that medical bills can easily exceed the amount in most emergency funds. I had two friends that relied on cards (0% offers) for cancer-related expenses. They both managed to pay it off with minimum amount of interest by transferring between 0% offers until they paid it off. Now, I do realize that many people may not be able to repay within 0% offer or even get 0%. But some people with good credit who were in this situation could. With this bill, there’ll be no such offers and even those with unexpected medical expenses who in the past could take advantage of 0% offers would not be able to.

Additionally, the banks will simply have to factor in extra cost of doing business – e.g. inability to raise rates – into their interest rates upfront. Which means that people who are indeed in this situation, will have to pay higher interest right away.

More importantly, I agree with Tom in that most of credit card users aren’t there because of medical bills. Statistically, over 50%, maybe even 60% of credit card users carry a balance. Surely 60% of Americans aren’t faced with high medical bills? As the banks are likely to set higher upfront rate if they cannot raise it later, these credit card users will either have forgo credit cards or pay higher interest rates right away. I doubt that high initial rate will be much of a deterrent to over-spenders: how many of them think about interest and how many simply think “I’ll only have to pay $15 a month”?

avatar tom

Credit card companies actually help instill good financial values. They reward good financial behavior with cash back and points and punish those who buy more than they can afford with high APRs and fees.

I’ll be royally pissed if credit card companies start cutting back on rewards because of this bill.

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avatar Smithee ♦1,358 (Quarter)

Do opponents of this bill really feel comfortable with double-cycle billing and arbitrary rate increases?

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avatar tom

Yes… because it does not matter to us: We pay off our balances each month. I realize how harsh that sounds, but already we are seeing changes to rewards programs which benefit the responsible card holders:

link

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avatar kitty

I don’t agree with the double cycle billing. But I believe not all credit cards have double cycle billing – correct me if I am wrong, I’ve never carried a balance so I wouldn’t know – so you can find a card that doesn’t do it. As with any business – if you don’t like it, you can vote with your feet.

As to arbitrary rate increases – credit cards never promised one a fixed rate. Plus, in some cases it’s not that arbitrary. For example, universal default: if a person defaulted elsewhere this person is higher risk. Higher risk = higher interest rate to offset the risk. For example, if you give out $100 to each of 10 people and you estimate about one of these 10 will default i.e. you’ll lose $100, you need to charge a few pennies over 11% just to get even. Now, what if you found out that for some reason (e.g. non-payment on another loan) one of your clients actually belongs to a group where 2 out of 10 people default. This would mean that you lose $200, so you’ll need others paying you $25 per person or 25% on $100 just to break even.

This is if your cost of money is 0. However, in most cases the cost of money is the interest bank pays on deposits, which right now is between 1% and 2.5%. But not all of this money is available: banks normally have to put about 10% in reserve (to pay the depositors who withdraw) and lend out 90% – except for today the reserves are higher to create buffer against future losses – so the interest collected on successful loans – mortgages, business loans and credit card loans has to be enough to a) cover liabilities such as interest a bank pays on all deposits including money in reserve b) cover defaults c) have enough left to cover business expenses such as salaries and to show a profit. The riskier the loan – the higher the interest rate, which is why the interest charged on mortgages which is secured loans is generally lower than on unsecured loans like credit cards. Now, you may decide that would be counter-productive: raising rates may lead to more defaults. You may be right and this may not be a good business model, but not liking someone’s business model is not good enough reason to tell them what to do.

This is why all cards are raising interest rates today: more defaults, higher risk of new defaults because of rising unemployment and higher reserve requirements to provide buffer for future losses.

The main thing though – while I don’t necessarily agree with some credit card practices, I believe the bill will be counter-productive. It’ll simply mean that some of those who complain now will not be able to get any credit card at all (maybe not a bad thing in some cases) or will have to pay a higher rate right away.

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avatar Luke Landes ♦127,475 (Platinum)

The results you expect to see due to this bill (certain people with low credit scores unable to get a credit card now, etc.) are already happening, and have been for several months.

Although in some cases interest rate hikes are not arbitrary, in a lot of cases they have been recently, or they’ve been across-the-board rate increases. And here’s the reason: credit cards can’t securitize and sell the debt overseas like they used to. They can’t offload the risk like they’ve been doing for the last decade. So now that they have to shoulder the risk themselves, they need to increase the cost to consumers in the form of higher fees and “arbitrary” rate increases. And those with spotty credit for whatever reason get hurt the worst.

Another reason is that in this economy, people are simply using credit cards less frequently. Those with the means are being *more responsible* with their credit, making that profit for issues more elusive. Again, they make up for that by finding ways to raise rates and charge fees for others.

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avatar DD

My rep voted against it. It makes sense though because we have a lot of cc companies that do business here.

As for the bill itself, I think it’s a good idea. But it’s a shame that it was even needed.

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avatar sam

I think this is a good idea, in the UK we have had issues with credit card companies and bank charges for a couple of years, credit card companies should be aware that they are not always treating people fairly and should be made to answer, people work hard to make money and earn a living and shouldn’t be held to ransom by big companies

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avatar MyJourney

While I agree with the egrigious actions of double billing and arbitatry interest rate increases the answer is simple and highlighted above – if you odn’t like it don’t use them!

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avatar Big Picture

This is a terrible bill that does nothing more than allow people to think less and depend on others to think for them. In fact I believe it does more to demerit those individuals that make good decisions, or provide sound advice based on experience and knowledge. This bill of rights will serve to reduce the number of people who are financial failures without providing any benifit to the many individuals that are financially neutural or successful. Since the credit card companies make a profit from those individuals who pay high rates, the shortfall will have to be recovered by increasing the costs that are paid by the businesses that accept credit cards. These additional costs will be realized by higher prices that all customers pay in order for the businesses to recover the additional credit card company fees. Everyone will see higher prices as the cost of doing business increases, without any increase in wages, so we all lose. Inflation anyone?

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