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May 19, 2009

New credit card law - good but not good enough

The Senate today passed a bill that has received a lot of attention all over the news and internet as being a win for consumers against the credit card industry. Unfortunately, its bark is much worse than its bite.

The bill was hyped as being aimed at preventing credit card companies from unilaterally raising your credit card's interest rate. You know, the way they do it now is to write you a letter that says "we are changing our contract to which you agreed." They then go on to say something to the tune of "deal with it or we'll cancel your card". The consumer in essence wields no power, except to not use credit cards at all. Then what would the Bank of Americas of the world do? But I digress.

The problem with the credit card law that the Senate passed today 90 to 5 is that it doesn't live up to its hype. Instead of preventing credit card companies from unilaterally changing your contract, the new law just makes the credit card companies give 45 days notice and an "explanation" before unilaterally raising your rate. I'm sure those "explanations" will be sooooo compelling. They will probably be based upon the same "explanations" given by the credit card companies when they deny your credit card application, you know - those cryptic explanations given that are actually supplied by the credit bureaus based upon the often inaccurate contents of your credit report.

Also, assuming the House passes substantially the same bill as the Senate, the law will not go into effect for at least nine months. I predict a rash of increases to credit card interest rates which, at the current stage of the recession, would be terrible for consumers. Once again, a bill is passed that is "billed" as being pro-consumer when, in reality, it does little to help the consumers and, in the short run, will hurt consumers when they are at their most vunerable.

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