Score One for Credit Card Holders!
It’s about time.
After receiving a record number of public comments — 65,000 — on proposed rule changes for credit card companies, federal regulators responded by adopting expansive new rules that clamp down hard on what many perceive as the cutthroat lending practices of credit card companies.
The move is a good start in leveling the playing field between credit card lenders and borrowers, although as far as I can tell, it doesn’t attempt to limit credit card interest rates, which can exceed 25%. (You might do just as well borrowing money from the man in the dark overcoat standing in the alleyway.)
The new rules, which don’t go into effect until July 2010, do stop credit card issuers from:
• Hiking interest rates on existing balances;
• Applying all payments to balances with lower interest rates when a borrower has balances with different rates;
• Changing account terms after just 15 days’ notice; now, they’ll need to give 45 days’ notice;
• Giving less than 21 days to pay before incurring a late fee; and
• Making deceptive credit offers.
While consumer protection was the intent of the rule changes, federal regulators acknowledge that the changes may also end up making it difficult for millions of people who have either bad credit or no credit from getting a credit card.
Well, wait a minute. Whoever said that access to a credit card was an inalienable right? If your credit history reflects a poor track record for holding up your end of the bargain — in other words, if you don’t always pay your debts responsibly — then why should any company feel obligated to loan you money?
After all, credit cards are an unsecured loan, meaning that, unlike a mortgage or a car loan, there’s no collateral the lender can reclaim if the borrower fails to pony up. So all they’ve got to go on is your credit history.
I have more sympathy for those with no credit. The people with a sparse credit history are usually young adults who may not have had a need or opportunity to borrow money. But paying off student college loans is one way to build a credit history, as is a car loan.
That’s what I did in my early 20s, a time when I hadn’t the foggiest clue about credit histories or why I should care about them. Most student loans are federally administered with a built-in deferral period that lets recent graduates get on their feet before beginning repayments, and federal student loans generally carry reasonable rates.
While not everyone attends college, most young people will still need a set of wheels, and that’s another way to get started building your credit. In my case, I saved as much cash as a 16-year-old could, with my grandparents matching that amount. My grandfather, a mechanic and the owner of a small service station in Boonton, New Jersey, picked out a reliable used car for me, a Ford Maverick. After an unfortunate encounter with a deer, I ditched that car and got a $3,000 bank loan for my next used vehicle, a Datsun King Cab pick-up. Repaying the loan wasn’t a problem, even on the modest salary of a newspaper reporter.
I think the many new protections the new credit card rules offer consumers far outweigh whatever inconveniences they may create for new borrowers. Credit, after all, should be a privilege that is earned.
What say you? Will the new rules affect you personally, and did they go far enough?
