Saturday, in his weekly radio and Internet address, President Obama called on Congress to send him a bill to reform the rules for credit cards, and to do it now. It is a request Congress should honor, and in a more stringent form than it has embraced so far.
Reforming the country's financial system is a priority in Washington these days, as it should be. (See "How your U.S. lawmakers voted" on this page.) And with the economic downturn, it is hardly surprising many Americans find themselves in financial difficulty. What is shocking, however, is how even economically healthy families can be hurt by credit card interest rate increases and outlandish fees.
As the president said, "Americans know that they have a responsibility to live within their means and pay what they owe. But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties and hidden fees that have become all too common."
In that, he accurately reflected most Americans' views. We all know how easy it is to get in trouble with credit card debt. And we are all aware that the fault usually lies with ourselves.
But that is no excuse to allow lenders to gouge consumers through arcane terms spelled out only in legalese buried in the fine print.
To curb those abuses, the Federal Reserve announced new rules in December that would alter the rules for credit cards. Among the changes, they will give card holders 21 days instead of 14 days to make their payments and require 45 days notice for interest-rate increases. Issuing banks will be required to state plainly the terms for the card for the first year, during which time the rate applied to purchases will not change unless the account is more than 30 days overdue. The new rules also will eliminate two particularly nasty practices: applying payments first to low-interest parts of the balance (typically purchases) before higher-interest portions (such as transfers) and double-cycle billing, in which interest is calculated on the current balance as well as on the average daily balance from the previous billing period. And they will limit initial fees on cards issued to people with poor credit to no more than 25 percent of their credit limit.
But the Fed's rules will not go into effect until July 1, 2010, which Congress considers too long to wait. On April 30, the House passed a bill legislating similar rules. Colorado's delegation supported it 6-1, with Rep. Doug Lamborn, R-Colorado Springs, in opposition.
The Senate should heed Obama's call, but with some amendments. The current bill contains too many exemptions and too few innovative changes.
Credit card companies could, for example, be forbidden to allow cardholders to exceed their credit limits. They also could be required to display what Washington Post columnist Michelle Singletary calls "point-of-sale transparency," in which cardholders would be shown their balance and how long it will take to pay it off with minimum payments - before a purchase is approved.
Bank executives worry the new rules will force some people out of the credit card system. But is that not part of the point? For what may be the worst abuse associated with credit cards is the way they encourage people to buy things they cannot afford.