Credit cards: Congress hasn’t rescued the unwary

Published 12:00 am Monday, June 1, 2009

President Barack Obama has signed into law a measure designed to protect consumers from exorbitant fees and interest rates on credit cards. Mostly, this is a good bill that helps average people.

But don’t be fooled. Congress acted only under extreme pressure and didn’t do much, really, to rein in companies that contribute very generously to members’ campaigns and very much enjoy having their customers in a vice. If nothing else, witness the fact that the new provisions don’t even apply for more than a year. How logical is it to crow, as some in Congress did, that immediate help was needed to protect us, then, by law, delay immediate help until next summer?

What the bill passed by Congress does ban is certain “gotcha” fees and other practices long employed by credit card companies as profit centers. Once the law takes effect, for example, issuers of credit cards cannot charge over-the-limit fees on their cards unless the consumer specifically has authorized spending over the card’s limit.

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The bill also requires that companies spell out in black-and-white terms how long it will take a consumer to pay off an outstanding balance if only a minimum payment is made. Issuers also have to give customers a 45-day notice about any changes, including in interest rates or credit limits.

What the bill does not do is:

• Impose any kind of cap on interest rates or fees,

• Limit the ability of an issuer to change spending limits, without notice, or to close an account or

• Address “behavioral profiling,” or the practice of setting rates or limits based on what type of purchases a customer makes.

And there is in the short term, at least, some likely collateral damage. It’s likely that issuers will bump up the annual percentage rates on their cards to compensate for the fact it will be harder to raise them. It’s also likely that people who pay off their balances every month will get nicked more often by annual fees and may lose the grace period on when interest accumulates. Look for other fees and penalties as well and perhaps fewer competitors as smaller card issuers leave the business.

In sum, the situation is this:

• General use credit cards are still something of a novelty in American commerce, not debuting until 1958 and not seeing widespread use before the 1980s.

• For most consumers, they are a useful, convenient tool.

• For the unwary, they are a fiscal trap — eating up thousands of dollars of household income merely for interest payments.

Credit card issuers are not immune from the greed that has wracked the economy. Companies use any means to get customers in the financial hole and keep them there.

Congress has done nothing — nothing — to change that.