Macro Economics
Credit Card Holder's Bill of Rights

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January 23, 2009

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This is so irrational. Credit card debt is revolving debt that is repriced every month based on current credit risk. Obama is signing a law to prevent banks from repricing debt based on current credit risk. What is the point of having a credit score if banks are required to ignore it?

OK, here's a hypothetical for you:

Suppose you've had a credit card for 10 years and have never paid late, always made more than the minimum payment and rarely use more than 30% of the limit.

Somewhere along the line you have some medical work done and you have insurance and you are letting all of the insurance stuff work through the system. Then, in the span of a week you get several pieces of mail: one informs you that your card limit has been reduced to a fraction of what it has always been; the other informs you that your rate has been jumped up to 21% because of data they found on your credit report.

In the research you do after these two tidbits, you find that one of the auxiliary medical service providers didn't bill your insurance company correctly, got their claim denied and then without contacting you sent the claim directly to a collection agency who never contacted you either but immediately put the collection on your credit report.

Because your credit card limit was dropped suddenly, the trip you had reserved using your credit card suddenly put over limit and that triggered the over-limit fees and the sudden spike in interest rates.

Now, I ask you, does it seem fair to you for all of this to happen to someone who is prudent with both their use and timeliness of payments? Does it seem as though after all these decades of credit card usage in America that the industry itself is going to offer consumer protection? Without these regulations do you have any recourse for redress...other than paying off the card plus all the fees? Is this, then the optimum place we want to be vis-a-vis the credit card standards?

Is the above hypothetical situation just some kind of rarity that we should never concern ourselves with because it doesn't happen often enough? I don't think so, especially when you consider that it could be that you moved and the final bill from one of the utilities was paid but not credited appropriately or any of a host of other quite common occurrences that happen outside of the direct relationship you have with your credit provider.

The point I'm trying to make here is that the payment pattern and history of your specific debt with a specific lender should be what guides the rates and fees on that debt. Using extraneous data, after the card has been awarded and a history established can only be to the detriment of the borrower to the enrichment of the lender.

Personally, I see nothing in these rule changes that really hurts the industry. They aren't granting much new credit these days anyway. I have never felt that the playing field has been level in the credit card arena. If I enter into any other contract, one side cannot unilaterally change the terms of the contract virtually at their whim, but credit card companies surely can.

The changes are long over due, IMO.