New Credit Card Laws
President Obama signed a new set credit card bill into law last May, which, this February 22, has introduced a number of sweeping changes into how credit card issuers can treat their debtors.
One of these was alas that said card issuers can no longer impose sudden higher interest rates on existing loans. As any cardholder may know, credit cards are difficult to control. You never know what a particular charge is about, unless you spend hours trying to nail down personnel at the card issuer’s place who can enlighten you. Often, as you get on with paying your loans, you will feel like the loan is never ending, and you are simply paying off the interest accumulation without causing any dent in the owed capital. This law addresses that fact, which often results in undisclosed charges and increasing interest rates that the borrower never even learns about.
Obama signed this bill despite tremendous opposition from a number of trader’s guilds that have a vested interest in the matter. They claimed that the law will penalize the “good” borrower indirectly, when it fails to penalize those that don’t pay back money on time. The higher interest rates, according to this argument, goes to make the defaulting borrowers pay more, but had no effect on high score borrowers who paid promptly.
This is not the right way to look at the situation. A poor borrower is someone who does not pay anything; a struggling borrower – a person from whom the banks make the most money – is one who pays the loan diligently, but simply takes a long time to pay back. A smart borrower when it comes to credit cards is one who uses them almost like prepaid credit cards, and a good borrower is someone who never borrows.
Given the above, it is obvious that higher interest rates only affect the struggling borrower, someone who is honest, but without money. The law is simply trying to help someone like that, and has no effect on other types of borrowers.