Credit Card Reform Won't Pay Down Consumer Debt

Starting today, the nation's banks must comply with the Credit Card Act of 2009. Although most of the legislation's key provisions will not take effect until February 2010, credit card companies must immediately begin to mail bills at least 21 days before their due dates and provide at least 45 days' notice before making a significant change to their rates or fees.

Credit card reform was needed, but it's not likely to help Americans kick their credit card habit just yet.

The credit card phenomenon has always felt eerily similar to a drinking problem. In moderation, it works for most of us. But once there's a habit of overindulgence, things go south quickly. And with credit cards, the drinker doesn't even have to pay up front for his martini.

Once hooked, many can't get off the stuff easily. So it's not surprising that the young are targeted. For years, credit card offers have flooded college campuses and teenagers with promises of easy credit. Starting in 2010, there will be far tighter restrictions on how companies can serve these under age drinkers. Congress will also require clearer disclosure about the terms of all credit card transactions, so the rules of the game can't change mid-stream.

All well and good, but will the new rules make a real dent in the scourge of credit card debt? I'm not so sure. Over the past thirty years, many Americans have formed a dangerous habit.

In 1980, US household debt amounted to approximately 50% of our Gross Domestic Product. Today, that number has climbed to 100% of GDP. According to Annaly Capital Management, a return to even the pre-bubble levels of 65% of GDP would require consumers to pay down $4.6 trillion of debt. For the 44% of families that carry a balance on their credit cards, that will not be an easy task.

The more suspect credit card company practices did not help anyone but the companies' shareholders; neither did they actually cause people to amass staggering sums of debt. That prize belongs to individuals who lived beyond their means and Congress can't legislate financial responsibility.

But the deep and painful recession has begun to snap people out of their credit-addicted stupors. While Congress' credit card reform will not do much to reduce consumer debt-that's the job of the borrower-perhaps more disclosure and limits on how credit card terms can change, will give debtors a better chance of kicking the habit.

Image by Flickr User Adrain Hoffman, CC 2.0

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Comments

[mbaty]

We consumers have to take some responsibility. However, the game was stacked against us from the start. 20+% Interest rates? Processing transactions late to aquire a fee? Changing the minimum payment without warning? These are some of the things that have bogged us down. On top of that, even if you have money in a bank, they will do the same thing, taking whatever fees they feel necessary at any time--no negotiation, no apology. And then to put it all together we have our debt-based currency and our fractional reserve banking system that appears more like a paradox than anything resembling sound fiscal policy. The icing on the cake? Our entire government would cease to exist and there would be zero money in circulation were all debts to be paid--which is impossible, since there would still be interest owed to the Fed. So please, do not blame the consumers. We are just trying to live our lives in peace with a modest amount of security. And debt is a necessary part of life in the crazy American monetary system.

[RadCenter]

I would suggest that the author read the following document before passing judgment on those who are "living beyond their means." Often the choice is between "living beyond their means" and not living at all. I know which one I chose. And I'd do it again if I had to.

www.demos.org/pubs/healthy_web.pdf

[stuporman]

the only things that will get consumer debt down are living wage jobs.

[RadCenter]

...with adequate health insurance.

[Jill Schlesinger - Huffpost Blogger]

Agreed that wages have to rise, but why are people unwilling to see that so many blew it for themselves?