Congress recently passed the “Credit Card Bill of Rights,” and the new law was signed by President Obama and will go into effect in 2010. I’ve been getting a lot of inquiries about whether or not the new legislation will have an effect on the debt settlement process, so in this blog post I’ll take a look at the changes and discuss some of the potential benefits (and pitfalls) for consumers.
Back in 2005, there was a lot of discussion about the change in the bankruptcy law, and we heard a lot of speculation on what effect the changes would have on the debt settlement process. As I wrote in an article published in August 2005, my prediction was that it would be “business as usual,” and there would be no effect whatsoever on debt settlement. That prediction proved to be totally accurate. Well, my take on the new credit card law is that it will still be “business as usual” when the new law goes into effect next year, and the banks will be settling accounts just as they always have.
A summary of the major changes to the way credit card banks are allow to conduct business under the modified rules can be found in this Boston Globe article.
What do I think of the new law? It’s partly a fig-leaf designed to give political cover to Congress. A lot of these folks will be up for re-election in 2010, and with millions of consumers hopping mad at the banks, politicians want to be able to say they stood up to the banks and voted in favor of credit card reform.
There are some pretty good provisions in the bill. For example, the requirement for simplified contracts will really help. It will no longer be necessary to have a law degree and an electron-scanning microscope to read the 30 pages of fine print that is a modern credit card agreement.
Better yet, some of the really outrageous industry practices will be blocked. Universal default, where Bank “A” gets to jack your interest rate because you fell behind on payments to Bank “B” will be a thing of the past. Retroactive interest rate increases on existing balances will be gone, as will double-cycle billing and a number of other truly sneaky practices.
So overall, I do believe this bill is beneficial to consumers. It will probably help many people to avoid falling into the clutches of the credit card trap. But for consumers who get into financial trouble and fall behind on payments, the trap will still be there, and this is why debt settlement will not be affected by these rule changes. All of the factors that motivate a bank to reduce the loss at time of charge-off will still be in place. But hopefully fewer consumers will get in trouble and need to take such a strong dose of medicine to solve their financial dilemma.
That said, the reason I still call this bill a fig-leaf is because the single most important provision the law could have included was stripped out. I’m referring to an interest-rate cap. Let’s face it, folks. We have legal loan-sharking in this country. There should have been a rate-cap included with the bill, but the banks got their way on that all-important factor. (See my blog post from April 12, 2006 on why we have legal usury in this country nowadays.)
Also, let’s be candid here. Credit card banking, by definition, is a predatory industry. Take away the revenue stream from late fees, over-limit fees, and penalty interest, and the banks would have posted losses in the years where they were otherwise profitable. Does anybody seriously think that the math wizards at these institutions won’t simply craft new ways to soak the American consumer in order to remain profitable? We’re already hearing about the restoration of annual fees for credit cards, and that’s just the start.
In the context of debt settlement, there is absolutely nothing in this new law that will affect how the settlement process works. Consumers who fall behind on their credit card payments will still be treated to a bombardment of collection calls and threatening letters. People will still be misled by an army of “debt experts” ready to take their money for rip-off “programs” that don’t work as advertised. And yours truly will still be here doing his best to help people sort out the truth about debt settlement from the hype and the nonsense.
One final word to the wise – expect debt collectors to start telling tall tales about how “the rules have changed, so we can’t settle anymore.” It happened when the bankruptcy law changed, and it was total bunk then. It’s already happening today, as collectors try to exploit the news headlines to trick and confuse consumers about their options. So if a debt collector tells you that “we can no longer settle because of new Federal guidelines,” don’t believe it for one minute!