Imagine
signing a contract with a bank for a loan, but the bank is allowed to increase
your interest rate at any time for any reason, charge you late fees even if
your payment is on time and divert payments away from high interest balances so
that you can never really pay off the loan.
Most folks
would tell the bank, “No thanks.” But of course, almost all of us
already have one of these deals — it’s called a credit card.
Credit
cards can be useful tools, providing us with payment convenience and revolving
credit when we need it. However, banks have written the rules to strip wealth
from working families, utilizing all sorts of tricky bait and switch tactics,
exploding interest rates and outrageous fees.
That is
now changing.
Earlier
this year, Congress passed and the president signed the Credit Card
Accountability, Responsibility and Disclosure Act, or CARD Act. This
first-of-its-kind bill — which I was pleased to help pass out of committee on a
12-11 vote — finally places some common-sense limits on what credit card
companies can do.
Starting
this month, credit card companies will have to send your bill 21 days in
advance to make sure you have enough time to receive it and send back payment.
They will have to give you 45 days notice before changing the terms of your
agreement so that you can decide whether or not you want to keep that card. And
the banks now won’t be able to unilaterally charge you more for money you
already borrowed: They will have to give you the option of closing your account
and paying off the balance at the existing rate.
The rest
of the CARD Act will go into effect in February 2010. At that point, banks will
be barred from arbitrarily increasing the interest rate on money you have
already borrowed without requiring you to close your account. They will also
periodically have to evaluate your account to determine whether you qualify for
a reduction in rates. Also going into effect includes a ban on multiple
over-the-limit fees during a single billing cycle, a requirement that payments
be applied first to the balance with the highest interest rate and limits on
aggressive marketing to young people.
This law
starts leveling the playing field between consumers and powerful financial institutions,
but there is much more we can and should do to ensure fairness throughout the
financial marketplace. Most importantly, we must move quickly to create a
strong Consumer Financial Protection Agency. This new agency would ensure that
we have the ongoing, professional oversight of our consumer credit markets to
prevent the proliferation of new tricks and traps. We shouldn’t need landmark
legislation like the CARD Act every time the financial industry thinks up new
practices that are clearly abusive.
Our
country does well when middle-class Americans do well. But for too long,
unregulated consumer credit practices have been stripping wealth from our
families, turning a useful tool into a destructive force. The new CARD Act
reforms start restoring balance to our financial system so that it works for
the best interests of America’s families and America’s economy once again.
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