A Freeze On Credit Card Rates?by Tim Manni
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?”