With the rising number of job cuts and foreclosure, consumers would certainly welcome some breathing room from their financial problems. Lawmakers are trying to do just that by banning excessive fees and arbitrary hikes on their credit cards. The proposed restrictions are expected to pass the Senate on Tuesday after the House endorsed the plan. The final version is expected to be signed by President Obama at the end of the week.
Once the bill is signed by the president, as is expected, credit card companies will have nine months to change their system. Lenders will need to disclose the credit card agreement online and let customer pay by phone or the internet for free. Customers should also be notified 45 days prior to any interest rate increase together with an explanation.
In addition, there is also a provision that tackles the trend known as “universal default”. In the new legislation, customers should first be 60 days behind on the credit card payment before his current balance can increase because of interest. Also, the credit card company is required to restore the lower rate after six months if the customer is able to pay the minimum balance each month.
Will The Credit Card Companies Take This Sitting Down?
Despite the government’s best intentions, this new proposal can potentially backfire. Credit card companies are fighting back by threatening lawmakers that this type of legislation will limit the flow of credit at the time of economic crisis. In their defense, the companies say that they are only trying to protect their business when providing financing to customers with no collateral.
With the election nearing in 2010 though, members of Congress don’t want to be accused of being unresponsive to the needs of their constituents. Legislators are saying that credit card companies have been abusive. Even President Obama has something to say about the issue. He argued that while free-flowing credit is crucial to the economy, his administration will not tolerate profits generated from deceptive practices.
According to Obama, “We don’t begrudge a company’s success when that success is based on honest dealings with customers” but the current credit environment is imbalanced in favor of the credit card companies. This needs to be corrected. It is also important to note that in order to restore confidence back in the economy; recovery should not start from Wall Street. Real recovery can only come from Main Street.