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Is Credit Card Reform Real?

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I spent a half hour on Larry Mantle's popular Los Angeles AirTalk Show this morning going through the pro's and con's of the credit card reform President Obama is expected to sign this weekend. Not even the credit card industry or the Cato Institute could make a compelling case against the common sense changes. You can listen to the podcast here

The bottom line for me is that the legislation does away with the most insidious bait-and-switches in the industry, where the fine print of the agreement is used against the card holder to suddenly jack up their interest rate with no notice. 

The bill, which passed the House today and Senate yesterday, would generally bar interest rate increases on existing balances unless a card-holder has failed to make even a minimum payment for 60 days. It would outlaw double-cycle billing, require 45 days notice before any interest rate increase and prohibit interest rate increases anytime in the first year that an account is activated. The legislation also would require card companies to apply a
consumer’s monthly payment to the debt with the highest interest rate,or to all debts equally.

What didn't it do? Cap interest rates.  An amendment by Senator Bernie Sanders last week to cap interest rates at between 15% and 18% only got 33 votes on the U.S. Senate Floor.  With banks that issue credit cards receiving virtually free money from the Fed, on top of the hundreds of billions in bailout funds from taxpayers, there's a great case to be made for a national cap on credit card interest. As Congressman Brad Sherman said on Air Talk today, the lack of a cap shows the banks still have a lot of power on the Hill.   

Overall, consumers will have less to worry about from credit companies under the legislation, and in my book that's a victory.  My Consumer Watchdog colleague Harvey Rosenfield has a different take. You can read his analysis here.

Maybe more importantly President Obama showed the power of his populist pulpit. He needs to use it again soon, to get health care reform back on track.