Senator Menendez Supports Credit Card Reform

Posted on 13. Jul, 2008 by admin in Lender abuse

Senator Menendez announced the Credit Card Reform Act (S. 2753) that will end some of the practices of credit card companies that lure consumers into financial traps such as excessive late fees, retroactive rate increases, unilateral default, unilateral changes to credit card terms and credit offers to consumers that cannot afford to pay. Consider why these actions by credit card companies are so egregious:

Excessive Late Fees

Consider a low income consumer that charges $50 and is late with their payment. Most credit card companies charge a late fee between $39 and $50. That is a tremendous return if that is an annual return. An annual return of $50 on $50 is, of course, 100%. But, lets assume for a moment that the consumer is two weeks late with their payment . . . the real rate of return for the two weeks is 1,300%.

Retroactive Rate Increases

A prudent consumer gets an offer in the mail for a 9% annual percentage rate credit card and accepts the card. Assume that the payments are due in 20 days and the consumer is late with three times with payments by a few days, but always makes payments. The credit card company raises the interest on the balance on the card to 29%.

Offering credit cards to consumers that cannot afford to make payments

Credit card companies routinely make offers to consumers that cannot make payments. The reason is that the ‘real loot’ that the credit card companies are seeking is the excessive late fees and high interest rate on balances described above. Many say that the consumer shouldn’t accept the card, but the people that say this have probably never been desperate to feed their family or fix their car so they can get to work to feed their family. But, if that is too much for some to accept, lets take college students for an example. College students are buried with an avalanche of credit card offers. When the credit card companies are asked about it, they slyly reply that it’s ethical to send them credit cards, because they will make a good wage when they graduate. Well, what about the four years before they graduate. How do they make the payments when due? They don’t and remember the credit card companies are not counting on them making the payments on time. The real loot is the excessive late fees and retroactive high interest rates.

Senator Menendez and the co-sponsors are on the right track with this.

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Tags: credit card reform, s. 2753, Senator Menendez