With Good Reason

In the shadow of the US Government’s massive subprime lending bailout, the House of Representatives passed legislation HR 5244, better known as the Credit Cardholders’ Bill of Rights Act of 2008. Designed to curb the growing torrent of credit card consolidation and bankruptcy filings, the bill bans or limits several lending practices, including:

• Increasing the annual percentage interest rate (APR) on the outstanding balance without the customer acting delinquently on the account in question.
  Example: John’s FICO credit score drops by 70 points over several months. Although he has never missed a payment on his credit card, the lender sees him as a default risk and raises his APR from 19% to 34%
• Using APR increases as penalties without a 45-day written notice
  Example: Suzy has missed several payments over the past year. On September 3, the bank decides to raise the APR on her card. The increase effects all purchases starting September 10. Suzy does not become aware of these changes until she receives her bill later in the month
• Double Cycle Billing – using the previous month’s balance to calculate interest due on an outstanding balance
  Example: Jim owes $1000, payable by September 30. He pays $550, ensuring he is not delinquent but leaving $450 due. Most lenders calculate interest due based on the average daily balance and interest for the billing cycle (e.g. $1000* 19.5% * 25 / 365 = $13.36 interest) , but lenders who use double cycle billing take the average of the current month’s balance and the previous month’s balance. Thus, if Jim spent $2000 the previous month, the interest would be calculated on $1500 rather than $1000 (interest = $20.03).

This consumer-friendly legislation subscribes to the widely-held belief that those who use credit should be absolutely protected against unscrupulous lenders and their willingness to prey on so-called high risk customers. These customers are often considered by lenders to be profitable due to their tendency to revolve (retain a partial balance after the payment due date and pay interest fees as a result). This practice of targeting economically vulnerable customers has been examined at length by several industry observers and authors …

>Continued at Cynics Unlimited