As expected, banks respond to a crackdown on their abusive behavior by raising rates. But we're still better off
It is no coincidence that the Wall Street Journal chose to mark the moment new rules kicked in that clamp down on abusive credit card practices by running a front page story declaring that credit card interest rates are on the rise.
On Aug. 22, the final phase of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 came into effect, instituting new limits on penalty fees and other requirements. (US News & World Report has a good breakdown on the changes here.)
On Aug. 23, the Wall Street Journal reports, citing data covering the second quarter of 2010, “issuers responded by pushing card rates to their highest level in nine years.”
The juxtaposition jibes all too nicely with the warning frequently voiced on the Journal’s opinion pages that any attempt to reduce credit card company profits by clamping down on exorbitant fees or arbitrary, outrageous interest rate hikes would be answered by higher across-the-board interest rates and scarcer cheap credit.
To her credit, Journal reporter Ruth Simon gives some room to people pushing back on this thesis. First, there’s New York Democratic Rep. Carolyn Maloney, the sponsor of the CARD Act:
Rep. Carolyn Maloney (D-NY), said that despite the rising rates, the law benefits consumers because it eliminates unwelcome surprises and provides them with a clear picture of the costs they will face. “Better that consumers should know up-front what the interest rate is, even if it’s higher, than to be soaked on the back-end by tricks and hidden fees.”
Then there’s the kicker, in which a banking lobbyist notes that, once the economy improves, competition will inevitably offer borrowers lower rates.
“This is a very competitive industry,” says Kenneth Clayton, senior vice president at the American Bankers Association, a trade group. “Somebody will take advantage of lower defaults to drive prices down.”
In fact, it will be easier for banks to compete, and for borrowers to choose. A lower interest rate, in theory, will mean exactly that: a lower interest rate, instead of an interest rate that is only lower because the bank intends to make up for lost profits with an avalanche of fees.
The Journal doesn’t give us too much detail on the new rules. Let’s pick out just two: Late fees can no longer be larger than your minimum payment, and you can’t be charged multiple fees for a single transgression.
For example, under the old rules, you could miss a $10 minimum payment, and get slapped with a $30 fine. And if the $30 fine happened to knock you above your credit limit, you could get hit with another fee for breaking that rule, too.
Maloney is right: Getting upfront information about how much your credit will really cost is a feature, not a bug, of the new rules. And if that means less accessibility to cheap credit, is that entirely a bad thing? The illusion that money was cheap fostered bad behavior at every level of the U.S. economy prior to the great credit crunch. Now, as documented by the Federal Reserve Bank of New York’s quarterly report on household debt and credit, Americans have been closing their credit card accounts and paying off their outstanding debt. Perhaps if credit had been more expensive to begin with, we wouldn’t have gotten in so far over our heads. And perhaps the real reason that the credit card companies are raising their rates has more to do with the fact that prudent consumer behavior is cutting into their bottom lines, than to the new rules.
And yes, of course the banks will find ways to game the new rules. But that’s why we now have a Bureau of Consumer Financial Protection to guard our backs. So let’s get Elizabeth Warren on the job, pronto!
More Related Stories
- Developers evict historic women's shelter to build luxury hotel
- Guantánamo prisoner on hunger strike cries for help on Twitter
- 3 possible solutions to international tax avoidance
- “I just want the U.S. to send my father home”
- Army weapons engineer tied to white nationalist organizations
- Ted Cruz against the world
- David Vitter's hypocritical, punitive, horrible new amendment
- Louie Gohmert: Women should be forced to carry nonviable pregnancies to term
- Could hackers destroy the U.S. power grid?
- Democrats may be even worse than Republicans at regulating Wall Street
- Eric Holder versus journalism
- A progressive defense of drones
- There's no substitute for government disaster relief
- Holder signed off on search warrant for reporter
- Mississippi could begin prosecuting women for miscarriages
- Mike Judge: "Bowling for Columbine" made me pro-gun
- Closing Gitmo is not enough
- Murkowski: Palin too disengaged to run for Senate
- In IRS scandal, new GOP tactic is ignorance
- Code Pink activist berates Obama at national security speech
- Cuomo: "Shame on us" if New York City elects Weiner
Featured Slide Shows
The week in 10 picsclose X
- 1 of 11
Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
Credit: AP/LM Otero
Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
Credit: AP/Matt Rourke
A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
Credit: AP/Jenny Aicher
Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
Credit: AP/Molly Riley
Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
Credit: AP/J. Scott Applewhite
Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
Credit: AP/Carolyn Kaster
O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
Credit: AP/Las Vegas Review-Journal/Jeff Scheid
Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
Credit: AP/NASA/Chris Hadfield
When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
Credit: AP/Jacquelyn Martin
A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
Credit: AP/The Duluth News-Tribune/Clint Austin
Recent Slide Shows
- 1 of 11