Here's some stuff in the new credit card bill. Sounds good on the surface, but I am certain that this will reduce the amount and increase the price of credit long term, making all borrowers worse off than they were before…. Cigarettes say “SMOKING WILL KILL YOU” and people still light up…. The road to hell is paved with good intentions...
_Require anyone under 21 to prove that he or she can repay the money before being given a card, or have a parent or guardian promise to pay off the debt if he or she defaults. Youth will be locked out of paying for an investment in themselves… training, classes, travel that could help them increase their earning potential.
_Require lenders to give customers 45 days notice before increasing rates and mail their bills 21 days before the balance is due. This one isn’t so bad, but in 45 days I could skip town. In this market 45 days is a long time. The Bretton Woods agreement broke down over a weekend.
_Ban fees if customers want to pay their bills by phone or online. Who is going to pay for the customer service rep to answer the phone and the extra people in the mail room? We are!!!
_Prohibit over-the-limit fees unless a cardholder elects to be allowed to go over their limit. I agree with this one, but I don’t think it will help too much. Like the “are you sure you want to delete?” message on a computer. You get so used to it that you don’t even think when clicking… until it’s too late. Doh!
_Require lenders to say how much time it would take and how much money in interest would be paid if only the minimum monthly payments are made. I don’t see anything too wrong with this the extra ink is negligible.
_Require that gift cards remain valid for five years. What? Why? If it’s my card and I make it, it should be under the terms that I want (as long as the terms are explained in simple language all over the card) Gota be difficult for retailers to plan inventories for cards that last that long.
What do you guys think? (mind you I'm against the govt. having any authority to do any of this... Caveat Emptor (let the buyer beware))
On a side note... when are we going to respect private property? I hate how the Chrysler bond holders are being vilified in the media... You can't just get out of contracts with govt. pressure. The debt is the bondholders' property and they can do what they please with their own property. I'm not a religious man by any means but to borrow from a wristband, WWTSD? What Would Tony Soprano Do? He would break their knee caps and then refinance as usurious rates of interest. Bust a deal and there will be/should be some pain.
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5 years ago
Thank you for sharing this, Mark. You make good points. Additionally, I would like to add the following.
ReplyDeleteThe bill is nonsensical for at least two fundamental reasons. First, it assigns government the authority to regulate business. Second, it violates the right of individuals to freely enter into contracts. Such is the psychology of the nanny state: people are not sovereign individuals with the authority to control their own lives, but irresponsible and needy wards of the state who require government protection against their own ignorance and shortcomings.
Thus it is a moot point to debate the specific terms of the bill when its entire nature is flawed. However, for the sake of argument, I will attempt to show why this particular bill will fail in its alleged mission even if a consumer protection bill were theoretically valid.
_Require anyone under 21 to prove that he or she can repay the money before being given a card, or have a parent or guardian promise to pay off the debt if he or she defaults.
The only way one can prove repayment ability is to have the money in the first place—in which case one would not need a loan. Further, supposing that government has the authority to regulate contract law, the terms of credit card contracts should be no different than the terms of other contracts, which can be entered into at the age of majority: 18.
_Require lenders to give customers 45 days notice before increasing rates and mail their bills 21 days before the balance is due.
Let the market work this out. Companies offering the courtesy of a 45/21 day notice would, over time, likely attract more customers than those companies that increased rates without warning. There is no need for the government to assign arbitrary time requirements.
_Ban fees if customers want to pay their bills by phone or online.
How are the customers paying by phone or online—with other credit cards?! (Maybe through electronic banking?) Credit cards offer loans to customers. Customers have the right to agree to accept the loan and all its associated fees… or the right to decline the offer of credit. The notion that people have the right to credit is a symptom of this Age of Entitlement. This aspect of the bill only encourages further irresponsibility.
_Prohibit over-the-limit fees unless a cardholder elects to be allowed to go over their limit.
I question the significance of these fees. One of my cousins stole our grandparents’ credit card and charged $21,000+ over the course of several months. Rather than charge penalties or block usage when she exceeded the credit limit, the company just “rewarded” her good behavior by raising the limit to $40,000 and mailing more cash advance blank checks. So I doubt that over-the-limit fees are even that widely used. And again, credit card companies do not OWE anything to individuals who seek credit. Offering even $1 of credit is a great courtesy. To suggest that individuals need not be responsible for monitoring their own card usage is reprehensible and encourages further recklessness without consequence.
_Require lenders to say how much time it would take and how much money in interest would be paid if only the minimum monthly payments are made.
It is the responsibility of the loanee to figure out how to pay off the debt he/she has accumulated. Forcing the credit card companies to provide this information will necessarily increase their expenses, as they will have to hire people or develop software to perform these calculations. Fees will then rise for everyone. Furthermore, it is erroneous to believe that providing people with information “for their own good” leads them to make better decisions. Mandatory food labeling and serving size information has not prevented people from drinking soda pop, for example. The surgeon general’s warning on cigarette packages has not resulted in a reduction in smoking, as Mark noted. Knowing may be half the battle, but the other half is acting on that knowledge. Observation tells me that many people fail on the action step.
_Require that gift cards remain valid for five years.
A gift card is an agreement between the company and the purchaser. In a free market, companies with flexible terms might attract more customers. It’s also possible that extending time limits beyond one year, for example, would have no effect, if most people use the cards relatively quickly.
The idea behind this bill—that people are incompetent to care for themselves—is atrocious, and its specific details will not “protect consumers” (whatever that phrase is supposed to mean).
Some minor points (very minor).
ReplyDelete>> The only way one can prove repayment ability is to have the money in the first place—in which case one would not need a loan. <<
One would need a stream of income greater than the loan payments. You don't need the money upfront. For example, getting a loan to build a manufacturing plant. That may not be the best example for a 20 year old, but maybe the 20 year old wants to put his tuition on his credit card. He doesn't have the money for the tuition payment but he works 20 hours a week while going to school. The income shows that he would be able to pay back the credit card charge.
>> Companies offering the courtesy of a 45/21 day notice would, over time, likely attract more customers than those companies that increased rates without warning. <<
Those not offering it may actually attract more customers. Those offering common sense courtesy would attract more good credit customers. Those with bad credit will get the credit anywhere they can and agree to more stringent provisions.
But of course, bottom line, you are correct. No need for the govt to assign arbitrary time requirements.
>> I doubt that over-the-limit fees are even that widely used. <<
I see these fees all the time. Those with bad credit go over the limits all the time. Your grandparents probably had great credit and regularly paid off large balances on the card. But as you say, a moot point since the the entire nature of the bill is flawed.
What I question here is the stupidity of lending to someone that can't make simple calculations to determine that if I have a balance due of $10,000 and I make the minimum monthly payment of $50, then it will take me 200 months to pay off the balance. If I'm really bad at math and I can't figure out how to use a calculator, I can still reason that 12 months isn't much more than 10, therefore 200 months will be a little less than 20 years.
Similar to the pretense and formality of all congress does, bills like this allow congressmen to assume their own importance and lordship. May they all burn in hell.
Your points and clarifications are well taken, especially #1 regarding needing a source of income greater than the loan payments.
ReplyDeleteA friend disagrees with the free market response: http://aelfscine.livejournal.com/170014.html