Criticisms of the Credit CARD Act of 2009

There appears to be widespread agreement that the Credit CARD Act of 2009 provides some important benefits to American consumers. However, it needs to be noted that not everyone is happy with this legislation, for a number of different reasons. In this article, I will briefly present some of the early criticisms of this new legislation.

First of all, some critics contend that the provisions of the new law will result in the people who are financially responsible being charged more in order to subsidize those who are financially irresponsible. We are already seeing some interest rates increase by as much as 10% across the board, even for people who have never been late on a payment. Others are seeing their minimum monthly payment amount being increased, even doubled in some cases. The credit card industry will certainly look for other ways to replace the profits that they will be losing as a result of the new regulations. Consequently, most card users can probably expect to see more annual fees, reduced credit limits, less attractive card rewards programs, higher fees for cash advances, and maybe even some new fees.

Another major weakness of this legislation, in the eyes of many people, is that it fails to cap interest rates on credit cards. A lot of people are already suffering with interest rates in the 20-29% range. In fact, according to Senator Bernie Sanders (VT), about one-third of American credit card users are paying interest rates of at least 20 percent, and some are paying rates as high as 41 percent. There is nothing in this new legislation to prevent your rates from remaining high or going even higher, so in this regard, consumers are still at the mercy of the credit card companies. It’s true that, with the new legislation, card issuers cannot raise the interest rates on your existing balance unless you have a promotional rate that has expired or you have a variable rate card. However, with new balances, card issuers will still be able to raise interest rates whenever they want, so long as they give card users 45 days advance notice.

Finally, some people believe that the new provisions relating to consumers under the age of 21 are both unfair and unwise. They argue that since 18 is the age of majority, individuals aged 18-20 should have the same rights under the law as people 21 and over. Restricting their access to credit cards can be seen as a type of age discrimination. A 21-year-old isn’t necessarily any more responsible and creditworthy than a person 2-3 years younger. Furthermore, critics argue, why should 21-year-olds (or even 30-year-olds for that matter) without any independent means of repaying their debt be allowed to have credit cards while 20-year-olds are not? Other critics contend that this provision will also disadvantage some young adults (ages 18-20), particularly those whose parents are poor or have problem credit themselves, because their parents would be unable to cosign for them. Plus, some parents will simply be unwilling to assume the risks of being a cosigner and possibly hurting their own credit rating. In either case, these young adults, without early access to credit, will take longer to establish a sufficient credit history to qualify for such things as car loans, personal loans, or even some apartments.

The foregoing are some of the reasons that not everyone is thrilled with the new credit card regulations. Nevertheless, it does appear that so far most observers believe that the positives of this legislation will outweigh its negatives.

Copyright © 2012, Art Garmon, Ph.D. All Rights Reserved.

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