On Friday the Federal Reserve Board proposed new regulations to prohibit lenders from arbitrarily raising interest rates on credit cards. Two exceptions are allowed for: 1) a promotional rate expiring; 2) the borrower being more than one month late on payment. Other rules would end “double-cycle billing” (calculation of one month of fees based on two months of activity on the account), limit how lenders compute balances, and divide payments equitably whereby balances under discounted rates are not paid off first. The new regulations are not expected to be finalized until January 1, 2009.
On behalf of the lenders, Edward Yingling, president and chief executive of the American Banking Association piped in, “We are deeply concerned that these rules will result in less competition, higher consumer prices, few consumer choices and reduced access to credit cards. In short, everyday consumers will bear the real cost of these proposals.”
Nonsense! — with one exception: reduced access to credit cards for unqualified borrowers. The credit card industry, which has pumped unrelentlingly dubious plans hidden in the fine print, had this coming. It goes to prove how government regulation is necessary to reign in greed.
With or without the new protections, consumers should only use credit cards wisely. The government cannot protect you from yourself, who may be your worst financial enemy. Unless an emergency, only use a credit card if you can pay off monthly charges to a zero balance. Benefit by charging a credit card with rewards such as airline mileage or rebates. Let the lenders make money off the transaction fees charged to the vendor, not your interest payments which are not tax deductible. Americans need more than government protection from financial predators; they need to practice money management skills.
Tags: credit card debt, Federal Reserve, fine print, greed, money management, regulation, unqualified borrowers, unscrupulous lenders
