Over the last 72 hour news cycle President Obama and the Congress have spent a lot of time congratulating each other for bringing about the Credit Cardholders’ Bill of Rights Act of 2009. The legislation carries a hopeful and impressive name, a name that suggests it confers rights upon consumers which previously they did not have. On closer examination, though, there seems to be precious little in the way of new consumer rights in this bill. In fact, I can find none.
Let’s take a quick look at some of the legislation’s provisions (which do not take effect until February of next year):
Crediting Payments: Under the new bill payments made by 5:00pm must be credited on the same day that they are made. No sandbagging the payments, posting them tomorrow, then charging late fees. That makes sense, right? If my payment is due on Monday, I should be able to pay the bill anytime before the close of business on Monday and have my payment credited as of that time.
Well, it always did make sense, and for the greater part of my life credit card agreements provided just that. During the 1960s consumers would not have tolerated the kinds of shenanigans the credit card companies have been pulling for the past several years, refusing to credit payments made after arbitrary and ever changing deadlines having nothing at all to do with actual operating necessity. It was a clear trick to generate large amounts of income from late fees.
Saturday/Sunday Payments: I can’t even remember when this changed, but it wasn’t so long ago that state laws almost universally provided that payment due dates which fell on a Saturday or Sunday would be extended to Monday. The new legislation restores this, now at the federal level. That’s good, but it’s not new.
Rush Payment Fees: I’m sure that anyone who has tried to make an online credit card payment on it’s due date has noticed that most of the credit card issuers offer two different types of electrons for online payments. You can use the standard slow electrons which, evidently, aren’t fast enough to transmit your payment quickly enough to get it posted to your account on time. It won’t post until at least the next day. If you use the standards electrons your payment will be late, and you will be assessed a late payment fee.
On the other hand, if you choose to use the faster electrons (called “Rush Payment” electrons) your payment can post instantly. The use of these special electrons, however, will cost you. The price is usually around $15.
The new legislation does nothing but speed up the regular electrons. They will now get your payment posted on time, just like clerks with pencils used to do in the old days.
Universal Default: The new bill provides that credit card companies cannot raise your interest rate because you have been late in making a payment to another creditor. What the card companies have named “universal default” will no longer be grounds for increasing your rate.
Again, there’s nothing new about this. No one had ever heard of universal default before the 1990s. As clever as lenders have always been at gouging and ripping off customers, it took almost 2000 years into the Common Era for them to even think of this scheme. The ban imposed by the new bill may be welcome, but it doesn’t give consumers anything new. It just restores what they lost.
While analysis fails to reveal a single truly new right anywhere in the language of the new legislation, it is easy to think of many old rights that are not restored by this act. Principal among them is the right to be free of usurious interest rates. Although a proposed amendment to the new legislation attempted to cap credit card interest rates at 15%, an avalanche of lobbying efforts by the banking industry crushed the proposal.
Loan Sharking: Younger readers may not know the definition of “loan shark.” For hundreds of years loan shark was a term applied to a person who loaned money at interest rates above a legally established maximum. Charging rates above the legal limit was not only a social embarrassment, it was a crime. Loan sharks were not only regarded as unsavory, shady people, when discovered they were put in jail.
Most states had usury laws that set the maximum interest rate on consumer transactions at somewhere between 12% and 18%. Loans made at higher rates were considered usurious, could not be legally collected, and often subjected the lender to a prison term. When Congress deregulated the banking industry during the 1980s federal legislation rendered state usury laws ineffective. For all practical purposes loan sharking, for which thousands of back alley criminals were sitting in jail, was legalized by deregulation.
Senators from both parties defeated the proposed interest cap arguing that the card companies could not stay in business with such strict limits on the rates they may charge. Funny, isn’t it, that during the thousands of years when usury was not permitted there seemed to be no shortage of lenders.
Bankers argued that with such a limit they would have to severely restrict the availability of credit. The truth is, of course, that when money is lent at 20%, 30% or higher it is not a matter of making credit available to a larger segment of society. It’s not about better serving the needs of lower income borrowers, socially disadvantaged borrowers or even customers who pose a higher than average credit risk. It’s just about greed. Nothing else, just greed.
I was interested in Elizabeth Warren’s comments on the proposed bill. She is always insightful, smart and plain spoken. All rare qualities for a Harvard academic. Quite remarkably, even Bill Maher makes good sense in the video below.
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