Will A Credit Card “Bill of Rights” Help Produce Low Interest Credit Cards?

US congressman Mark Udall thinks so; he has just presented legislation to the US Senate that out-lines his version of a “Credit Card Bill of Rights”. The gist of the bill is to force credit card companies to send notice of a rate increase prior to raising your rates. However, should congressman Udall get his bill through the Senate as penned it will wipe out a lot of the fine print we see on credit card statements and applications.n nFor instance, the bill will freeze rates and terms on cards that are canceled by the credit issuer. This is so if the company revokes the card from the user they will be unable to hike rates and fees on the outstanding balances. The bill also asks to revoke the issuers rights to raise rates for credit activities unrelated to their account; as well as the halt of over the limit fees on approved transactions. Udall is very optimistic about his bill sighting support on both sides of the aisle. Predictably, the bill is expected to meet fierce resistance from the credit card lobby. The argument is; “that without these necessary fees many people will have to do without credit cards and pay higher rates”. Also, some in Congress are wondering if now is the right time to be passing financial legislation that could further injure the financial sector. This writer believes that the time for these changes is long over due. The industry has been given ample time to “self-correct” and has failed to do so. The credit card industry is best described to the sub-prime mortgage industry before the collapse. If we have we not learned anything we have learned this; overcharging customers with shaky credit to produce volume is a recipe for disaster. Eventually the write-offs will increase and the economy will take the hit. Just as in the mortgage market the credit card industry needs to shift, bite the bullet, so to speak. Instead of dreaming up elaborate new fees to raise revenues they should streamline their approvals to less deserving card applicants. Doing this they could lower their write-offs and simplify their fee structures for the deserving cardholders. Of coarse, this would mean lower revenues, lower corporate bonuses and cause mass CEO firings. Ironically, this is what we are seeing in the sub-prime mortgage market these days. The difference is the mortgage market waited for the collapse and the credit card industry has the chance to head off destruction. Unfortunately, none of the top CEOs are willing to take the pay cut or the risk being fired for lower performances. Don’t get me wrong; I feel that the credit card industry is offering really good deals on credit cards. In fact the low interest cards that are on the market are the best that we have ever seen. The problem is there are just as many bad cards being offered as the good ones. The bad ones have a much higher default rate, which cost the company money. So instead of raising rates they opt for tricky fee schemes that affect everyone. If Congress is successful passing this bill it will effectively make the credit card companies raise rates or lower the losses by approving fewer cards. This should be interesting to watch.n