Why is the "CARD Act" bad?

[Knightskye]

I just want to know what to say if I get asked why I'm against it, besides it being the government intervening in the market.

I know most well-intentioned legislation will likely have negative consequences, so what are some that will result from the "CARD Act"?

[cswake]

As someone intimately familiar with this subject, I can definitely say this article and the corresponding links summarize it well:
http://seekingalpha.com/article/186936-how-the-credit-card-act-will-affect-you


H.R. 627 and H.R. 3639 are intended to be the Nanny State coddling the American public and protecting them from the evil big banks. But this type of legislation will most likely have unintended consequences such as raising the cost of credit, decreasing its availability and preventing the savers, not that there are any real savers and producers in the economy anymore as they have all left for Galt’s Gulch, from being able to efficiently allocate their capital to the entrepreneur.

[FrankRep]

Credit Card Accountability Responsibility and Disclosure Act of 2009
http://en.wikipedia.org/wiki/Credit_CARD_Act_of_2009



A new bill, expected to be signed by President Obama, would restrict credit card companies from common late fee rate raises, but instead it might tighten up credit, and do away with perks. By Steven Yates.


New Restrictions on Credit Card Industry (http://www.jbs.org/jbs-news-feed/4921)


Steven Yates | John Birch Society (http://www.jbs.org/)
22 May 2009


Many observers have seen a crisis approaching in the credit card industry, with personal debt and defaults climbing during this recession and the industry’s willingness to raise rates, charge fees for bills paid by phone, and exact penalties for late or missed payments.

On Tuesday, the Senate passed a bill by a vote of 90 – 5 that would limit the $960 billion industry’s ability to raise rates and charge fees (http://www.foxnews.com/politics/2009/05/20/credit-card-forces-dems-vote-gun-rights/?test=latestnews). The next day, the House concurred, passing an equivalent measure by a vote of 361 – 64. The legislation will probably reach President Barack Obama’s desk by Memorial Day.

President Obama is expected to sign the bill into law. The president met yesterday with representatives of the industry; he had been pressuring them to end practices often deemed abusive of consumers.

The new law would prohibit banks and credit card companies from raising interest rates on cardholders’ balances unless a payment is at least 60 days late. Then, if the cardholder pays on time for the next six months, the law would compel the company to restore the earlier interest rate. It would also require banks and credit card companies to notify cardholders of any interest rate increase 45 days in advance (as opposed to the 15 days now in effect) — duplicating a measure already scheduled to take effect on July 1, 2010 in response to new regulations recently issued by the Federal Reserve. Cardholders could not raise rates on new accounts for one year.

Another provision of the new law would require lenders to apply consumer payments to the debt that has the highest interest rate, in those cases of credit cards with more than one interest rate. It would also bar lenders from charging fees to customers paying by phone or online, and it would bar them from establishing early morning deadlines for payment that would lead to late fees for customers paying by phone or online on the afternoon of the due date.

Finally, applicants for credit under the age of 21 would need to have their applications signed by someone over 21, proving they could pay or that a parent or guardian would pay just in case they default.

The measure is popular among consumers, but is not without its critics who believe that in the long run it will harm the people it is intended to help. Edward L. Yingling, chief executive of the American Bankers Association, warned (http://www.washingtonpost.com/wp-dyn/content/article/2009/05/19/AR2009051901867.html): “This bill fundamentally changes the entire business model of credit cards by restricting the ability to price credit for risk.” Talking to the Washington Post, he explained, “It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate.”

In other words, credit cards might become more difficult to obtain as available credit is reduced by approximately $2 billion. This would make it harder for new small businesses and low-income borrowers deemed “risky” to establish a credit line. Those with weak credit histories would be hardest hit.

Moreover, since the credit card industry makes roughly $15 billion a year from penalty fees, and one fifth of cardholders carrying a debt pay interest rates above 20 percent, if revenue available from these sources dries up, card issuers will turn to those who pay off their credit cards each month; it is they who might find themselves saddled with new fees. Special offers and rewards programs will likely be cancelled.

A minor controversy surrounding this bill is an unrelated amendment allowing visitors to national parks to carry loaded guns, which many Democrats oppose. Legislators from the House and Senate are presently working to reconcile the differences between the two versions of the bill. If President Obama signs it, it will go into effect February 2010, except for the clause requiring lenders to notify cardholders of rate increases which will go into effect in August.


SOURCE:
http://www.jbs.org/jbs-news-feed/4921

[cpike]

I work in retail and this legislation, in parts at least, actually works against consumers. For example no retailer is able to offer a No Pay/Same-As-Cash promotion any longer. With that say a customer finances for a 6 months NoPay/SAC, interest would accrue, but it would be waived if the customer pays it off in 6 months. It's nice, because people can skip months if they like and it will still be interest free as long as it's paid in full before the promotional period was up. Now we can only offer 6 months SAC w/ min. pmts. Now if a customer misses a single payment (which is something like $15, all the interest goes on. I've seen financed purchases drop like a rock because of this.