Law of the West | TheFencePost.com
YOUR AD HERE »

Law of the West

by John Scorsine
Peyton, Colo.

This last month I was reconciling all my credit cards and I actually took a few minutes to read the terms. It was ironic that my activities were just about the same time the Federal Government decided to turn its attention to credit card abuses.

Each day it seems that we hear about the Federal Reserve dropping one interest rate or another by a quarter point or a half point. Yet, it sure seems that our credit card interest rates do anything but go down. Credit card companies make their money in a variety of ways, the most benign being the fee they assess the merchant for the privilege of accepting a credit card. This particular fee is part of the cost of a merchant doing business, and of course gets passed on to the consumer in the merchant’s computation of his selling price. The merchant has to assume that a customer will pay by plastic and has to build the credit card fee into the price.

That isn’t really the profit center for the credit card companies. It is the consumer and especially the consumer that carries a balance on their credit card from month to month. Credit card companies, without any real notice, change interest rates. Rate changes can be built on both the consumer’s history with a particular card, or even in unrelated matters ” the most notorious is the universal default clause. Under these clauses if a consumer defaults on one account, it is considered to be a default on other unrelated accounts. The practical impact is that if you get a late payment on one account, for whatever reason, you may see a number of your other accounts suddenly increase your interest rate to astronomically high levels ” I have seen credit card rates that would make a loan-shark blush!

The universal default clause isn’t the only practice that can be seen as abusive. Credit card companies charge for late payments, accounts that exceed credit limits (though remember their system pre-approves your charges) and arbitrarily changing rates on existing balances. The Consumer Union estimates that credit card issuers collect $15 billion annually in penalty fees, and overdraft fees run to $17 billion a year.

Finally, the Federal Reserve and the office of Thrift Supervision have proposed rules to curb these abuses. “The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” Fed Chairman Ben Bernanke said at a meeting to approve the proposal. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.” It should be little surprise that the credit card companies and banks are not too happy.

The Rules are open for public comment for the next 75 days and should be final ” amazingly enough, around the time for the elections. The key provisions in the proposed rules are:

This last month I was reconciling all my credit cards and I actually took a few minutes to read the terms. It was ironic that my activities were just about the same time the Federal Government decided to turn its attention to credit card abuses.

Each day it seems that we hear about the Federal Reserve dropping one interest rate or another by a quarter point or a half point. Yet, it sure seems that our credit card interest rates do anything but go down. Credit card companies make their money in a variety of ways, the most benign being the fee they assess the merchant for the privilege of accepting a credit card. This particular fee is part of the cost of a merchant doing business, and of course gets passed on to the consumer in the merchant’s computation of his selling price. The merchant has to assume that a customer will pay by plastic and has to build the credit card fee into the price.

That isn’t really the profit center for the credit card companies. It is the consumer and especially the consumer that carries a balance on their credit card from month to month. Credit card companies, without any real notice, change interest rates. Rate changes can be built on both the consumer’s history with a particular card, or even in unrelated matters ” the most notorious is the universal default clause. Under these clauses if a consumer defaults on one account, it is considered to be a default on other unrelated accounts. The practical impact is that if you get a late payment on one account, for whatever reason, you may see a number of your other accounts suddenly increase your interest rate to astronomically high levels ” I have seen credit card rates that would make a loan-shark blush!

The universal default clause isn’t the only practice that can be seen as abusive. Credit card companies charge for late payments, accounts that exceed credit limits (though remember their system pre-approves your charges) and arbitrarily changing rates on existing balances. The Consumer Union estimates that credit card issuers collect $15 billion annually in penalty fees, and overdraft fees run to $17 billion a year.

Finally, the Federal Reserve and the office of Thrift Supervision have proposed rules to curb these abuses. “The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” Fed Chairman Ben Bernanke said at a meeting to approve the proposal. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.” It should be little surprise that the credit card companies and banks are not too happy.

The Rules are open for public comment for the next 75 days and should be final ” amazingly enough, around the time for the elections. The key provisions in the proposed rules are:

This last month I was reconciling all my credit cards and I actually took a few minutes to read the terms. It was ironic that my activities were just about the same time the Federal Government decided to turn its attention to credit card abuses.

Each day it seems that we hear about the Federal Reserve dropping one interest rate or another by a quarter point or a half point. Yet, it sure seems that our credit card interest rates do anything but go down. Credit card companies make their money in a variety of ways, the most benign being the fee they assess the merchant for the privilege of accepting a credit card. This particular fee is part of the cost of a merchant doing business, and of course gets passed on to the consumer in the merchant’s computation of his selling price. The merchant has to assume that a customer will pay by plastic and has to build the credit card fee into the price.

That isn’t really the profit center for the credit card companies. It is the consumer and especially the consumer that carries a balance on their credit card from month to month. Credit card companies, without any real notice, change interest rates. Rate changes can be built on both the consumer’s history with a particular card, or even in unrelated matters ” the most notorious is the universal default clause. Under these clauses if a consumer defaults on one account, it is considered to be a default on other unrelated accounts. The practical impact is that if you get a late payment on one account, for whatever reason, you may see a number of your other accounts suddenly increase your interest rate to astronomically high levels ” I have seen credit card rates that would make a loan-shark blush!

The universal default clause isn’t the only practice that can be seen as abusive. Credit card companies charge for late payments, accounts that exceed credit limits (though remember their system pre-approves your charges) and arbitrarily changing rates on existing balances. The Consumer Union estimates that credit card issuers collect $15 billion annually in penalty fees, and overdraft fees run to $17 billion a year.

Finally, the Federal Reserve and the office of Thrift Supervision have proposed rules to curb these abuses. “The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” Fed Chairman Ben Bernanke said at a meeting to approve the proposal. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.” It should be little surprise that the credit card companies and banks are not too happy.

The Rules are open for public comment for the next 75 days and should be final ” amazingly enough, around the time for the elections. The key provisions in the proposed rules are:


Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.

User Legend: iconModerator iconTrusted User