Yesterday, President Obama urged Congress to pass
credit-card reform legislation by Memorial Day. In his weekly address, he stated, "There is no time for delay...We need a durable and
successful flow of credit in our economy, but we can't tolerate profits that
depend upon misleading working families."
The House passed the Credit Cardholders' Bill of Rights
back in April.
Under the legislation:
"Card companies will no longer be able to retroactively
raise the interest rate on existing balances--except under limited
circumstances, such as a 30-day delinquency. When the credit card companies do
increase an interest rate, they will be required to give customers 45 days'
notice. In addition, interest may only be tallied on balances in the current
billing cycle, statements will be mailed earlier in the billing cycle, payments
will always be allocated to the portion of the balance with the highest
interest rate, and hefty fees for over-limit transactions will be banned unless
cardholders explicitly permit it ahead of time."
The bill is now back in the Senate's hands where it awaits
action, and the President intends to campaign for the reform at a townhall
forum in New Mexico
this week.
Our current crisis is a crisis of
confidence by both consumers and lenders. When regulating the extension of credit,
our Congress must be mindful of the potential unintended consequences that
could result from this kind of reform. This administration has gone to great lengths to get credit
flowing and to encourage consumer spending. Regulating the credit
card industry could very easily result in a drawing down of credit lines -- negatively impacting consumer spending despite its good intentions. Erecting obstacles to the extension of credit is no way to get yourself out of a credit crunch.
For comments or suggestions, please post below or find me on Twitter @despinakarras.