The outcome of the credit card reform bill

Remember the Credit Card Reform bill that Obama signed into law last May?

"With this bill we are putting in place some common sense reforms designed to protect consumers," Obama said at a signing ceremony at the White House.

It was a proud day to be an American. Finally the government was standing up for the little guy.
For example, look at First Premier Bank Credit Cards. They were offering a $250 line of credit with a minimum of $256 in fees per year. But with the new law, fees were capped at 25% of the credit line.
So what did First Premier Bank do to abide by the new laws?

Here’s something you don’t see every day: A credit card with a $75 dollar annual fee, a $300 limit, a $29 penalty for being late or over limit… and an interest rate of 79.9 percent? Welcome to First Premier Bank, a sub-prime credit card issuer.

What the Credit Card Reform bill didn't do is cap interest rates.

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awesome!

I think Wells Fargo is getting into a similar game. I know they are moving into payday loans and a host of them want to get into this "business".

What's that phrase? Half measures availed us nothing?

What I want to know is where is this lobbyist school? For every loophole Congress manages to close, they seem to get 10 more into the next bill. It's petty amazing and frankly lobbyists ability to hide BS into Congressional legislation is at this point such an art Congress itself could learn a thing or two from them. Oops, wait...that's right...
each one of these cats did a short stint in Congress, often as a staffer, being paid peanuts, to figure out how to manipulate Congress and hide their agenda in legislation.

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EXACTLY!

They go from congress to be lobbyists, and this appears to be universal as the legislative assistants (LAs), administrative assistants (AAs) and congress critters so frequently flow in the same direction --- to the lobbyist and PR firms, or the create their very own (Albright Group, etc.).

Or, in the case of someone like....say, Senator Patty Murray (D-WA), the staffers who leave go into the lucrative jobs-offshoring industry --- seeing no problem with driving unemployment up and up and up in America! (I once did a research project on her staffers.)

And they frequently return to government to further enhance their future earnings upon returning to the lobbyist sector (e.g., Tara O'Toole, pharaceutical lobbyist now at the Dept. of Homeland Security). Had one looked at Teddy Kennedy's staff, shortly before his death, one would have found former Monsanto and Big Pharma employees.

And the beat goes on......

[Disclaimer: I'm not picking on the dems here, but simply ignore that other bunch altogether and have traditionally hoped for something better from the so-called dems.]

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Silly, why would they do that?

I just hope that people are wise enough not to take this offer but I suspect there will be quite a few takers. My neighborhood loan shark can provide a better rate than that but you better pay on time or else.

What's worse broken limbs or broken credit score?

RebelCapitalist.com - Financial Information for the Rest of Us.

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this goes to the "Financial driver's license test"

We've talked about this, unbiased personal finance education...
but I think it needs to be mandatory, like obtaining a driver's license. one cannot sign any loan or do any major financial transaction before talking the test.

Why would they do this? Because people will sign up for this card.

Just like payday loans. Why would anyone in their right mind, take out a week loan which is at 200% interest or whatever it is.

Payday loans are one of the fasting growing market segments out there.

It's pretty clear the minute one gets past "payments" there are a hell of a lot of people in the United States who do not comprehend what interest rate even means. Seriously, I question whether they can do any addition or subtraction in their head and they also seem to be oblivious to that device known as a calculator.

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FYI - Rep. Louise Slaughter has proposed

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They're cutting their own throats

What will happen is, consumers now becoming a tad more frugal, will find the cost of credit too high and stop using the cards. Essentially we're going to go back to an earlier era when credit was reserved for the well to do, the poor will get next to nothing in access, and the middle class will get the worst of both worlds. Stores know this, that's why you're seeing the return of lay-away in places like K-Mart and Target. Folks will go back to paying with cash or debit or installment payments. Banks or I should say consumer credit has left a bad taste with a lot of people. Kids watching their families lose their homes, college youth now struggling with debt, what you could see is an entire generation becoming weary of these products that banks offer. On the plus side, there is an opening for outfits like Credit Unions, if only the latter could get it's act together.

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never underestimate the ignorance and stupidity of people

Sorry but it's true and that's why there are laws banning some things, driver's tests, signs that say "cliff" with barriers to make sure people cannot stand at the edge... and why "free markets" don't always work. "free markets" underlying assumption is that people always act in their best interest and if there is ever a case for when people do not....it's getting a payday loan.

Now most people know to never get a payday loan but there is a segment of the population upon which these types of things prey.....and unless we stop this by some sort of law....
they will always been preyed upon because for whatever reason, they cannot get it together to act in their own best interest.

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There is a large segment of the population that is

financial illiterate - we have talk about this before. Payday lenders know this. Predatory home lenders know this. Credit card companies know this. And worst of all financial conglomerates know this.

As long as there are huge numbers of people who are financially illiterate there will be products like payday loans.

Payday loans are vicious - people often get caught into a ever revolving lines of these loans and they don't know how to escape. It is truly sad to see.

RebelCapitalist.com - Financial Information for the Rest of Us.

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Ok, lets be honest here

A good portion of the population is too damn stupid to use a credit card or any credit whatsoever. You could mandate tests or certification programs, but it would be like those driver's seminars you have to take if you get a ticket. And then there would be all this hewing and hawing from retailers. It's also like mobile phone contracts, people just sign, or pretend to read then sign.

We need to reign in on predatory lending. Credit should be considered a precious thing, guarded and only given out to qualified individuals. I know this sounds bad, but it was like that when the first forms of credit cards and such. My old man once told me how it was a bitch to get a diner's card.

There should be rules for credit issuances. If you make $1000 a month, your limit for consumer credit should be no more than a week's paycheck. Well something like that. I've seen folks who make minimum wage get a platinum card with a 10k limit. That's insane, no one below 100k/yr income should get something like that! Secondly, if you have one Visa, then that's all you get from Visa, same with the others. Don't like the card? Fine, pay in full, and terminate, then get another one.

We also need to make mortgages hard to get again. Back in the day, you actually had to have 20% for a down payment. This no-money-down shit has got to go. And you had to verify your income. Imagine that! Yes, many won't be able to afford a home. Well if that happens to enough people that would place a pressure on the price of housing. Maybe now we'd get affordable homes. Otherwise, rental isn't bad. Trust me, someone will come up with a way to make an affordable home for the masses again. But for crying out loud, don't give away mortgages like they're gum!

Rebel, I hear you on paydays. But this also ties to interest rates on credit cards. Why can't we cap the rates? If they want to use LIBOR, fine. But if you're borrowing the money from the Federal Reserve/Treasury, then you get a cap. If the open window is a fraction of a percent (let's say 0.25%) and LIBOR is 2%, then you're capped at a ratio of prime, say 2x of prime. You still make your profit, and folks have a chance. Payday loans also carry a risk for the lender, as you know, but really we have to ask WHY are folks going to them? We solve that, we'd all be ahead.

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Credit should be a precious thing.

And yes, we should have caps on credit cards. As for payday loans - that's a little more difficult - generally the problem again is one of financial literacy - very basic stuff like budgeting.

RebelCapitalist.com - Financial Information for the Rest of Us.

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Payday loans

This is pernicious and should be outlawed. The interest rates are bad enough -- they are posted but people See such loans as a means of survival -- money goes to basic needs, whether it is food, shelter, or feedog an addiction (let's not get into a clinical argjument here, the payday lenders do not care what you use the money for -- As for "basic needs", check the literature on delay discounting). Normally, you use your Visa card and don't pay, they eventually say "No more credit for you," and take your card away. You can't go to jail for owing money, you just get your credit score busted and no more loans.
But payday loans have an insidious collection mechanism. They require you to write a post-dated check -- if you do not make it good, it becomes a bad check and you can go to jail for that.
A solution for that (in addition to ursury ceilings) would be to outlaw the practice of post-dated checks as a condition of loans. Require these lenders to take the same risk of non-payment as credit card issuers do. Why should our criminal courts act as collection agents for predatory lenders? It's a misuse of taxpater money.
Frank T.

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Frank T.

jobs, jobs, jobs, jobs, jobs

But many banks require credit checks for checking accounts

So, no they are not that easy to open. The problem of the 'unbanked' has been a problem for a while. And you're right that financial education would help out tremendously.

RebelCapitalist.com - Financial Information for the Rest of Us.

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what are you talking about?

I have never had a credit check for any bank account and even some brokerage accounts. Never. No one ran my "credit report" and I didn't open a Scottstrade account because they were using that as a basis to approve non-margin accounts and I thought that was B.S. since there were "no loans involved".

You can get a bank account with pretty much any foreign id too, you don't even need a social security number.

So, whoever is claiming this, well, I don't know where they are going. I have little free checking all over the place because I use them for the "internets" to make sure I'm not putting my real funds, financial data online and also for convenience because I live in a rural area. You can open these things for next to nothing and also maintain a balance of like $25 bucks or whatever..
all free and as long as you don't overdraft, I've never paid a single anything.

I think this is some sort of myth, else why would people who just declared bankruptcy so easily open a free checking account? When you're in bankruptcy, your credit score just went to complete shit, esp. before it's closed out....

i.e. a credit score @ 550 or the lowest score possible.

I'm not even sure if they run any criminal checks, i.e. looking for people who forge checks, bounce checks repeatedly and so on.

I've actually asked this because when they run your credit too many times, it can lower your score and I believe they must tell you....so as far as I know they did not do any sort of credit check and that's asking them directly if they were.

so maybe they are doing something when you give your SS but I'm positive you can open an account with no credit history or a bad credit score...
now something criminal? I'm not sure because I've never done anything criminal.

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FDIC to Banks: You Need to Do More

FDIC Survey:

Some requirements for opening bank accounts can prevent unbanked individuals from utilizing mainstream banking services. 87 percent of banks require a credit check such as ChexSystems in order to open an account, which impacts unbanked individuals with poor credit histories. The vast majority of banks also require either a driver’s license or passport.

This was a problem back in 2000 when I was working on this issue in Chicago. People were unbanked because mainly requirement of credit check. I developed a program with City Colleges of Chicago to offer free adult financial literacy classes and we got a few banks to accept a certificate of completion as a substitute for credit checks. Even today this is a problem.

RebelCapitalist.com - Financial Information for the Rest of Us.

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I am glad that finally this issue and predatory lending are

getting some press but there were a lot of dedicated people working on these issues in late 90's - particularly predatory lending and NO ONE would listen. I remember taking trips to Springfield, IL to plead with state legislators to do something about predatory lending and it fell on deaf ears.

It makes me so angry to hear Wall Street blow-hards, politicians and even Greenspan say they didn't see it coming. BULLSHIT - they were warned that this shit was happening but they chose to ignore it because people on Wall Street were making boat loads of money on these shitty loans.

Organization such ACORN, Center for Responsible Lending, Wookdstock Institute were warning people about the problems - NO ONE would listen.

Again, it is good that the issue of the 'unbanked' and predatory lending is getting some press but this SHIT has been happening for quite some time. It is just that finally because the repercussions of this BULLSHIT is being felt on Wall Street and rest of America that people are starting to pay attention.

I sometimes wonder if this crisis didn't happen whether predatory lending would've gotten any attention - probably not.

RebelCapitalist.com - Financial Information for the Rest of Us.

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Ignores a crucial data point, though

This blog and study ignores a very important piece of data: banks and banking varies from state to state and in some states or cities, one finds that a hefty minimum deposit is required for checking access, hence the unbanked!

They pay larger fees on a money-on-hand basis, which is why the data indicates the unbanked are in the lower-income groups.

Yet another example of why all data are crucial prior to arriving at a conclusion, and why the pop culture media is so consistently inferior at presenting any but skewed data.

Thank the gods for the blogs and bloggers.

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that might explain some things

if you can dig up state laws and see what's going on...

yes an initial deposit, or a too long of a hold on the 1st check would be a deterrent if you're living paycheck to paycheck and need that money immediately.

Still, I've lived in 7 states and found cheap initial deposits, free checking in all of them.

Then, I have "internet banks" which are out of state.

So, I think there is more to this story, such as they do not trust banks to even go find about about a checking account....
or maybe they do not know how to write a check at all, maybe they cannot read, cannot add/subtract and the idea of a balance without cash in pocket is too much.

What's the English literacy rate in the U.S. these days...
but I know you can do all banking in Spanish..probably the entire thing and writing a check is just a proper name and some numbers so that shouldn't be a deterrent.
If you cannot read at all (any language), that maybe a bigger problem.

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