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November 2nd, 2009

A Freeze On Credit Card Rates?



Senate banking committee Chairman Chris Dodd proposed a legislation today that would freeze the interest rates on the existing balances of an estimated 700 million credit cards.

While Dodd’s camp maintains that the legislation reinforces the Congressman’s opinion that “more consumer protections were needed,” many critics see the proposal as another “political maneuver” by the lawmaker who is seeking reelection:

Mr. Dodd’s proposal seemed aimed at reconnecting the Connecticut Democrat with voters, many of whom have questioned his close ties to big banks after he was tied to a sweetheart loan scandal. The Senate ethics committee cleared him of violating any rules, although his poll numbers remain shaky.

Spokeswoman Kirstin Brost said the bill was not a political maneuver and only reinforced Mr. Dodd’s views that more consumer protections were needed.

“At a time when families are struggling to make ends meet, jacked-up rates can quickly create crushing debt,” Mr. Dodd said in a prepared statement. “People need to be responsible with their money, but they shouldn’t be taken to the cleaners by outrageous rates.”

Banks have already reacted to the bill, claiming that such a limit would greatly reduce their profits — only serving to limit their lending capabilities and increase costs.

Since some banks have been raising rates before the new Federal rules — limiting how and when a lender can increase an interest rate — take effect, we know consumers are going to jump all over this (who wouldn’t want their interest rate to never rise?). However, we should tread softly when we begin to draft rules that serve to negate previously signed contracts.

While we’re not advocating on behalf of the big banks, in their defense, they are gearing up for new rules that are projected to cost them billions in profits. When we sign up for credit cards we are agreeing to all of the terms and conditions hidden amongst the fine print. Dodd’s proposal would only serve to void those contracts even further than the new rules will starting in February of next year.

Observers tend to think that this legislation has little chance of making it through the Senate. What do you think readers — necessary or not?

Coming Next: “Is it Possible to Live Without Credit Cards?”

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3 Responses to “A Freeze On Credit Card Rates?”

  1. Mitch Says: November 8th, 2009 at 1:40 am

    As you probably know by now, I definitely support the legislation, and it’s the fault of the banks. My wife and I are “victims” of the rising interest rates from credit cards. I’m just glad that I don’t have any of the cards that have been suddenly discontinued without warning. I felt like anyone who voted against this bill needs to be voted out of office at the next election.

    And I don’t usually take this strong a stand against anything, unless it’s personal, and in this case, it was.

  2. Tim Manni Says: November 9th, 2009 at 1:11 pm


    We appreciate you sharing your “personal” battle. It used to seem like the stories in the news happened to someone else — we used to find ourselves saying things like “that will never happen to me,” or I’m grateful that didn’t happen to me.” However, these days, those news items are happening to us. And when it happens to you, the game changes. I can understand where you’re coming from.

    Thanks for sharing, always a pleasure,

  3. Frank Elliott Says: February 28th, 2010 at 10:33 pm

    May I take you by Robin Hood’s Barn to make this point about the creddit card industry? I mean for this subject to remain on everyone’s minds-and ideally, from among our best writers, for us to compose: a “Declaration of Independence from usorious lenders”.
    In a very real sense, laws are passed ( regarding lending practices ) without really consulting the borrower.This is identical in many respects to the time when The King of England and Parliment passed laws requiring more money to be withdrawn from the pockets of the Colonists…never consulting the colonists, nor providing services in return-other than brute enforcement!
    Make no mistake about this. Urorious rates are a TAX. Think of the amount of tax taken from your paychecks every week. Then add up the ‘tax’ taken from you monthly in the form of all indebtedness in the form of interest charges. I think you would be stunned.

    If you’re still with me, use my own sad story here as the perfect metaphor for our voluntary enslavement to creditors.

    Once a client defaulted some $2,000 for work I providedover a 6 weeek time frame. It seems small, but affter 6 weeks, then 8, then 12 of no money…electricity was disconnected alogn with the phone, insurance lapsed, so the tag on the work vehicle had to be surrendered…thus I was in bankruptcty , and facing foreclosure. I went to my high school lawyer friend for help. He put me to work for him, in his factory…at $60 a week until the case was settled. Of course, my ‘friend’ was in no hurry, and had no incentive whatever to expedite the case, did he? It was to his advantage to work me for over 7 months at a below subsistence wage. Indeed, I discovered that he routinely practiced “indentured servitude” for many who made the mistake of coming to him for legal work in exhange for the skilled labor they had to offer.
    Eventually, I just quit. Never mind collecting $2000. I had lost ten times that amoutnby then-not to mention suffering without electricity for 7 months in winter-goign to bed with sinter coat toboggan and gloves…reading by light of kerosene lantern, as my breath condense in the bitter cold air of my bedroom!

    Point being,I volunteered for indentured servitude without realizing it, hadn’t I? By this time, I had lost my home, and was homeless. Did my lawyer friend ‘care’?. Are you kidding? When I told him what this had cost me..he just said “That’s not my problem”.

    (Incidentally, I prayed to my Creator for help, and He provided $17K out of nowhere, and I recovered al lthat I had lost….this for anyone who doesn’t beleive God cares about individual people, or has the time…He does and He will. Ps 34 states it plainly. My credit score is over 700)

    We are all in a similar circumstance with our creditors. We all volunteer for indentured servitude to them…who raise fees, or interest rates at will. If this causes hardship, and we inevitably default by late payemnts…we are burdened with even greater debt and fines and fees, until we are completely broken and our credit ruined for 7 years. OurCredit Card lender’s response? “Thats not our problem”

    We will never escape from these vicious cycles of boom and bust, until we as a nation, as a large group of many millions of us, perhaps as many as 40 million…simply close our accounts, and never use their lending service ever again. What would happen to them?..Why they would go belly up, and default themselves, and lose their homes! That is exactly what would happen. it happend to ruthless GMAC who filled Auto Max and others with repossessed cars, ruining the credit of some 40 million people-while =raking in obscene profits .

    How about it,friends? Let us compose a declaration of Independence” for everyone to agree to in principle, and pass it around the web.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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