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Easy Credit: Our Nation's Downfall

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By Michelle Singletary
Thursday, May 7, 2009

I have no doubt that those working to reform the credit card industry mean well. But neither Congress nor the president can fix the fixation that many Americans have with using credit rather than cash.

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The House has passed a Credit Cardholders' Bill of Rights. The Senate is moving forward, ratcheting up the restrictions on what lenders can and cannot do. President Obama has laid out his vision of reforms for plastic, which has become as essential in the lives of most Americans as a driver's license or Social Security number.

But people will still be able to swipe their way into massive debt in seconds -- and it's that ease of borrowing that has produced hundreds of thousands of credit addicts.

Several of the protective measures being pushed through Congress contain exceptions and conditions under which lenders can still penalize consumers. These loopholes allow issuers to continue to exploit the card users who are at the most risk, and my prediction is that many of these people will voluntarily opt in for the mistreatment.

Currently, many card issuers reserve the right in their cardholder agreements to increase the interest rate at any time, for any reason. Banking and credit union regulators have already passed rules that will prohibit lenders from unilaterally raising interest rates on existing balances. The legislation that is likely to be passed would do the same.

The problem is the exceptions are so wide that a lot of consumers will still get themselves trapped. For example, retroactive interest rate increases on existing balances will be permitted by lenders if a cardholder is more than 30 days late on a payment or if a consumer fails to comply with a debt workout agreement.

So just who do you think will still get these rate increases -- which we've seen can soar to 20 percent or higher?

Most people aren't late paying their credit card bills because they're triflin' around. They are late because they are in financial trouble. They don't have the money. The exceptions being proposed in Congress won't help these folks.

Congress and President Obama are trying hard to stop credit card issuers from allowing consumers to go over their credit limits. To reduce oppressive over-limit fees, credit card issuers would have to get a customer's permission to set up their account to process transactions that would place them over their credit line.

This "gives consumers control over their own credit behavior," said a senior administration official who is working with the Treasury Department on the president's credit card reform initiative.

I've stood in the store behind people who hand over their credit cards and close their eyes and silently pray that the charges will be approved.

Who do you think will opt in to allow over-limit purchases?


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