This latest article from Business Week strikes an interesting debate over regulating unfair business practices of credit card companies. While this topic has been discussed before a new law could go into effect by the end of 2008 to curtail these practices.

Read the article here

See the propoposed changes here in the Federal Reserve Press Release from May 2, 2008.

Article Excerpts
David Giantomasi says he vigilantly paid his credit-card bills each month. Even if he could only make the minimum payment, he made sure to get all his monthly payments squared away. So he was shocked when the interest rate on his Chase credit card suddenly jumped to 19.99% from 7.99%. When Giantomasi called the card issuer to demand an explanation, he was enraged. He was told that overall turmoil in the credit markets meant higher rates for a number of customers.

In a response posted to the Fed's Web site, Bank of America, the nation's largest credit-card issuing company, summarized the industry's attitude toward the new rules: "We believe the practices the agencies are mandating are far from ideal, from the perspective of consumers, banks, and the financial system as a whole." Bank representatives held a series of private meetings with the Fed and the ABA. According to notes from the meeting on the Fed site, industry officials reiterated that risk-based pricing actually keeps rates down overall for the majority of consumers.

My Take
There is always a fine line between allowing businesses and industries to be self regulated and requiring government regulation on business practices. Many credit card industries have become predatory along with other lending practices in the last 10 years or so. Perhaps regulation is needed. On the other hand, if consumers carrying debt are never slapped on the wrist for excessive debt then they have little reason for changing their ways and learning from mistakes if penalties are not harsh enough... My opinion is let the business remain self regulated. Higher rates for "bad customers" means better intro rates for those that use credit wisely: more 0% rates, rewards, and intro $ to be had. If you don't want to be taken advantage of by the credit industry, don't put yourself in a position where they can take advantage of you. Pay your balances in full every cycle and don't carry high interest debt.

These rules will definitely hurt the FWF community. Why should we all suffer because others are not able to live within their means and get themselves in trouble financially? Why should I not be able to get a low introductory rate (hopefully 0%) because someone else decided to buy things that he/she couldn't afford?

For anyone too lazy to read the FTC proposed regulations here are the basics, along with a few other additions. These would definately reduce the profits of credit companies, causing higher rates for everyone and likely reducing teaser rates that FWF makes profit from. Are they predatory in nature? Absolutely. Are they within guidelines for government reform and regulation? Maybe.

• Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.

• Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.

• Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.

• Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.

• Banks would be required to provide consumers a reasonable amount of time to make payments.

What is not known is what Chase saw in David Giantomasi's credit profile. We are hearing only one side of the story and Chase is not going to talk anyway.

uutxs said:websquirrel said:Just to play devil's advocate, why would a bank offer a low introductory rate (especially 0%) unless there are people out there who have decided to buy things that they can not afford?
Banks are not necessarily lending to people who have decided to buy things that they who cannot afford; they are offering the teaser 0% APR (for 6-12 months) in the anticipation that a good number of customers will not pay it off with in the intro. period and will eventually pay interest.

Which basically means you cannot afford it...!

lgyeresi said:These rules will definitely hurt the FWF community. Why should we all suffer because others are not able to live within their means and get themselves in trouble financially? Why should I not be able to get a low introductory rate (hopefully 0%) because someone else decided to buy things that he/she couldn't afford?

I would assert that most FWF'ers don't care about rates because they don't carry a balance (AORs excepted)

Corndogg said:For anyone too lazy to read the FTC proposed regulations here are the basics, along with a few other additions. These would definately reduce the profits of credit companies, causing higher rates for everyone and likely reducing teaser rates that FWF makes profit from. Are they predatory in nature? Absolutely. Are they within guidelines for government reform and regulation? Maybe.

• Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.

• Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.

• Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.

• Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.

• Banks would be required to provide consumers a reasonable amount of time to make payments.

These are all very reasonable regulations. They might hurt the banks profits (and our BT offers) but the banks should not be allowed to bury customers who are paying on time with higher interest rates.

For a FWFer who does not carry CC balances, compare it to a mortgage company tripling your HELOC interest rate after doing a soft inquiry and seeing something that they don't like.

I could care less. Anyone who carries a balance on a credit card and pays any interest is a moron.

Anyone who carries a balance on a credit card and pays any interest is a moron.

Wow. I guess I'm a moron then. I didn't realize that the fact that the issuer gave me a very attractive embossed card with which to more conveniently access my credit line made borrowing money from them 'moronic'. I always thought it I should choose the best interest rates and repayment terms. Can you explain to me why that little plastic card should make me choose a loan product with less favorable terms and interest rate? Remember, please speak slowly and use the simplest words you can. I'm a moron you know.

I could care less. Anyone who carries a balance on a credit card and pays any interest is a moron.Depends on the return you receive on the credit card balance. For example, you pay 6% interest on your credit card balance, but you are using the credit card to finance a business that is netting a 12% return. If you passed on the business because you'd have to pay credit card interest, you would be the moron.