A Real Credit Card Bill of Rights

If you’ve picked up a newspaper over the past few days, you’ve no doubt heard that new credit card rules are being fast tracked through the Federal Government and that President Obama hopes to sign a bill changing the practices of the credit card industry by Memorial Day.

Reform of the credit card industry is long overdue, but I now hope that the final bill isn’t called the credit card bill of rights. I’ve liked the idea of a set of basic principles which everyone can agree should govern interactions between consumers since I first heard the name. However, as the Senate bill is debated, and the House bill already passed, I don’t think that the legislation holds a candle to its predecessor - the first ten amendments to the United States Constitution. So I decided to come up with the 10 principles that I would use to craft credit card and debt reform.

In other words, here’s my first crack at a real credit card bill of rights:

1. A credit card company must fully disclose details about its credit cards before entering into a contract with a consumer for credit. Like a company is required to pass information along to its shareholders and potential shareholders, the credit card industry needs to be more transparent to those with whom it does business. Here’s the type of details I think consumers would need to make a fully informed decision: (a) the average interest rate of all cardholders, and cardholders in the consumers credit score range; (b) the average interest rate increase for cardholders from the promotional rate and when this increase usually occurs; (c) the annual fee, if any; (d) the percentage of consumers serving a penalty rate; (e) the amount of money the bank expects to earn from the consumer yearly; (f) the number of consumers with that card who pay off their bill every month; (g) the average balance of those consumers who don’t pay off their balance every month; and (h) the number of people who are more than 30 days late.

2. A credit card company may only report limited information to a credit bureau. The credit card industry holds consumers hostage with the threat of a negative report on their credit history. Let’s diminish the credit score’s importance by limiting the type of information financial institutions can report (is one late payment really creditworthy?), the amount that they can report (perhaps every 90 days?), and other short term measures that may have little relevance on creditworthiness.

3. A credit card company must credit a payment to the consumer’s account upon notification a payment has been made. In the age of the internet, does anyone believe that a payment made at 4:59 PM should be treated differently than a payment made at 5:01 PM? Or that a payment has to be scheduled 2 days in advance to work? No. They are both ridiculous and need to be put to rest.

4. A credit card company may not charge a fee to collect a payment. Cash, Check, Debit, Electronic Payment, Over the Phone, or any other method should all be the same price: Nothing.

5. A payment processor may not charge more than a negligible amount for processing a transaction. One amendment today sought to make it easier for stores to prefer cash over credit. Let’s put a stop to talk of a two price society by giving both consumers and merchants what they want: cheap credit transactions.

6. Late fees may not be unreasonable in size or timing of implementation. $35 for one or two days late sounds a bit excessive to me, don’t you think?

7. Unilateral changes to a cardholder agreement by the credit card company are not permitted. Let’s put a stop to “fixed” variable payments, take it or leave it changes to card terms, increased interest rates on existing balances, and other credit nonsense. I’m not sure the best system to permit changes that both parties desire, but that’s why we’d have a Supreme Court to interpret this bill of rights.

8. A creditor may not make endless telephone calls and letters to a consumer about their unpaid debt. There’s no need to harass a debtor who doesn’t have the money to pay or has chosen not to pay. Let’s put an end to the creditor’s collection tactic of choice - call until a consumer pays them money to get them off the phone. Let’s give them one call and one letter a year after the first three months to communicate that a debt is owed and that the consumer is obligated to pay it. I don’t think most people take advantage of the law which allows them to have all communication in writing - so let’s change it.

9. All power not expressly granted by the government to the credit card companies are retained by the consumer. If the credit card industry has too much power, we need to find a way to transfer some back to the consumer. Let’s give the credit card companies (especially those that have become too big to fail) the same terms that we gave the government - they are restricted from doing everything that we don’t expressly permit them to do.

10. The courts should interpret disputes between credit card companies and consumers in favor of consumer protection. For years, consumers have argued that credit card company actions were unfair and the courts ignored them. Now, the majority of the legislature seems to agree that card issuers were out of control. Let’s give the courts instructions not to wait for legislative action next time.

How’s that for a first draft of a real Credit Card Bill of Rights. What would you change? What did I miss?

I bet one of the things you are wondering is why I don’t have a cap on interest rates as part of the bill of rights. It was the subject of two amendments today - one capping rates at 15 percent and one at 36 percent. But I’ve written my “bill of rights” to focus on providing the consumer information and limiting the consequences of the parts of credit that people don’t plan for (like late fees and increased interest rates). But as much as I believe that interest rates shouldn’t be allowed to be usury, I also think that a person should be able to make their own decisions about whether they are getting a good deal on the terms of their credit and debt. It’s the changes and unplanned implications of those terms (like late fees) that I’m primarily concerned with more than the terms at the beginning. So I’d be willing to limit increases in interest rates, but not well informed decisions by consumers who need credit and are willing to pay a higher price for it. For example, at the height of the subprime mortgage boom, a borrower could get a fixed interest rate for a mortgage at around 7 percent. Even though that may be outrageous compared to today’s under 5 percent rates, it’s a much better deal then during the 1970s. So it’s all relative, and in the future a cap of 15 percent might be ridiculous. A bill of rights should be written to transcend these changes.

I’d also like to have restrictions on reductions in credit lines by credit card companies. For example, Advanta essentially told its small business credit cardholders today that it would no longer allow them to use their card for credit transactions after June 10. Essentially, one million small businesses just lost their funding. To me, that’s the 21st Century equivalent of a bank during the Great Depression closing (before FDIC deposit insurance). But which one would you remove in order to make room for it?

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