California Consumer Rights

President Obama recently signed into law a major new credit reform bill which, among other things, limits the ability of credit card issuing banks to crank up your interest rates, imposes restrictions on over-limit fees, mandates a minimum 21 days to make payment, and provides more transparency regarding payment terms and deadlines.  All good.

But you don’t get something for nothing in politics, or in banking, unless you’re a CEO. So here’s the price we’ll have to pay for our new credit card protections:

1. The return of annual fees;

2. Fewer rewards for using a credit card;

3. Reduced availablity of credit cards and little or none for low-income consumers; and,

4. The issuance of adjustable rate credit cards.

Each of these is a revenue booster to compensate credit card companies for the loss of their smoke and mirror lending practices, but the last one is a particularly neat trick. Let’s look at it:

The issuance of adjustable rate credit cards sounds benign enough. It enables consumers to benefit from mark downs, and banks to keep pace with mark ups.

But keeping abreast of fluctuations in short term interest rates is not the  real motive of the credit card companies. It’s a tad more sinister than that. Surprised?  Credit cards will in the future be issued with adjustable rates, because the restrictions on jacking-up interest rates that are contained in the new credit card law apply ONLY to fixed rate credit cards.

Do you see opportunity here? The banks do..

Heres’ how it will work:

You procure a new credit card with an adjustable rate. Then, let’s say interest rates go down.  You benefit. But let’s say you miss a payment on another account….

Whammo!  You’re at 29.9% on every one of your adjustable credit cards.  Only this time they have to give you forty-five days notice before they jack you up. Sound familiar?

New law.  Same as it ever was…