New Credit Card Rules Go Into Action

Happily, the CARD act provisions are in full effect now. So, what to look for on your statements? I think the disclosure about how long it will take you to pay off your credit card if you only pay the minimum is helpful, especially when coupled with how much you need to pay in order to pay off the debt in just three years. But, consumers must actually read the statements to get the disclosure . . .

CNN has a good piece on credit card reform (click here, as I could not embed it). With card companies increasing rates, there has been a greater proliferation of high rate cards. First Premier has a card for high risk customers that carries a 59.9% interest rate! Yikes! Interestingly, the National Credit Union Administration caps credit unions at 18% interest on credit union cards by law, but private card companies have no such similar limit (See LA Times, Seattle Times). Of course, its all about access to credit, according to the American Banker's Association. While I can understand access to credit and the need for people to build credit, 59.9% is over-the-top and at that rate perhaps some people should not be getting credit, as the cost is too high. Perhaps there is a role for the traditional usury statutes again.

Whose to blame for all this mess? Well, the Supreme Court had a part to play with its 1978 decision in Marquette vs. First Omaha Services making it legal under the National Bank Act for banks to locate in states without interest rate restrictions. Although the Court recognized that this would impair the effectiveness of state usury laws, the problem is "better addressed to the wisdom of Congress than to the judgment of this Court." Despite the passage of the CARD Act, Congress has not addressed the interest rate differential. Perhaps the increases in rates after the CARD Act might provide some impetus for changes to the extent banks overreach in their charging of customers.

- JSM