My Take On The Credit Card Bill Of Rights, And A New Reward Card Benefit

Everyone has complaints about credit card companies. They seem to operate by rules that would be illegal in any other industry.

Enter The Proposed “Credit Card Bill Of Rights”

Last February a “Credit Card Bill of Rights” was introduced by House Financial Institutions and Consumer Credit Subcommittee Chairwoman Rep. Carolyn Maloney (D-NY) and Financial Services Committee Chairman Barney Frank (D-MA). The bill has several key provisions:

1. A restriction on arbitrary interest rate hikes. This is when people who pay their bills on time still see their APR go up for no apparent reason. This bill would require 45 days notification before a rate hike and allow consumers to pay off their balance at their old interest rate.

2. Prohibits “Double Cycle Billing”, a practice where you are billed on the interest of your balance over the last two payment cycles, including interest on principal that has already been paid.

3. A crack down on payment due date gimmicks. Banks would be required to mail statements out 25 days before they are due, instead of the current 14. They would also prevent credit card companies from charging a late fee when a card holder can provide proof of mailing seven days before the due date.

4. Allow card holders to set mandatory credit limits. Currently, banks approve transactions above your credit limit, and then charge you an “over the limit” fee.

5. A restriction on heavy fee subprime credit cards. This provision requires that some fees be paid up front before the card is issued.

6. Protects card holders from missleading terms such as “fixed rate” and “prime rate”

7. Requires credit card companies to fairly allocate payments. This would prevent them from applying payments to the lowest interest rate debts first.

8. Prevents card companies from charging the “over the limit” fee more than three times. This would prevent the fee from being tacked on over and over again on every purchase made after you reached your limit.

9. Better oversight of the credit card industry. Congress would collect statistics on credit card usage and fees.

Where Does This Bill Stand?

In March, congress held hearing in which it heard from consumers who felt taken advantage of by unfair and misleading credit card offers.

In September, the House of Representatives passed the bill by a 312 to 112 majority. The bill is now awaiting a vote in the Senate. The assumption is that the bill either does not have enough votes in the Senate and/or the support of President Bush, and will therefore not get a vote. I suppose it is possible that there might be some movement on this after the election, in the fear that the next Senate and/or President will enact even harsher legislation. I wouldn’t bet on it though.

What Does The Credit Card Industry Say?

During the hearings, congress heard from the credit card companies who warned of less restrictive credit and fewer reward card opportunites if this legislation passed.

Where Do The Current And Future Presidents Stand?

Bush has said he opposes this bill. Barack Obama not only supports this bill, but would go beyond it and have credit cards rateding system enacted to improve consumer information on credit card features. This is somewhat surprising since his running mate, Joe Biden, has long been an advocate for credit card companies, many of whom are based in Delaware, the state he represents. John McCain, who reportedly is a big credit card user, has not taken any position on this bill.

Where Do I Stand?

I think that most of this bill is excellent, and some of it is silly. Restrictions on arbitrary rate hikes and double cycle billing are both no brainers, as are allowing mandatory credit limits. I am also a big fan of the provision forcing banks to apply payments to the highest interest rate balance first. I also have no problem with the provisions clarifying language, although it will probably end up as small print somewhere that I will never look.

I love the part reducing the due date gimmicks. How is it that companies ask for “to allow 7-10 working days” for us to receive things by mail, and we should also expect our mailed in payments to take just as long, yet bills are sent out only 14 days in advance of their due date? On the other hand, I think the part about showing proof of mailing is a gimmick itself. How does one do that short of paying extra for priority or express mail and/or delivery confirmation? Paying electronically is both instant and verifiable. I would have much rather the bill outlawed due dates falling on weekends and holidays, one of the industry’s most bizarre practices.

As for the credit card industry’s arguments, in the wake of the current financial crisis, more restrictive credit terms for sub-prime borrowers seems like a good idea now more than ever.

Fairness Vs. Rewards

Finally, the idea of fewer reward card offerings does not concern me. I think that the restrictions are eminently reasonable, and almost certainly will have little effect on the vast majority of reward card holders or issuers, as these are people who pay their balance on time.

If however, I was to believe the doom and gloom scenarios painted by the banks, I would still be in favor of the credit card bill of rights. I do not want to travel for free because banks are profiting through unfair and deceptive credit card practices. If these shady practices are the only reason reward cards exist, frankly I would rather not vacation on the backs of my less fortunate neighbors who have been cheated by their banks.

A New Reward Card Benefit

Continental will be waiving it’s first bag fee for customers holding it’s Chase / OnePass rewards card. This currently will benefit travelers who are not OnePass Elite members, but who do hold this card. Holders of the “Presidential Plus” card get both their first and second bags checked for free, just like the old days (or today at Southwest!) If I were planning a big family trip this year, like a ski trip, and I had booked it on Continental, this card would potentially save hundreds me of dollars in baggage fees. With oil prices plumetting, we are likely to see more offers like this than an actual reduction in baggage fees.