The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2008, S. 3252 was introduced before the Senate in July of 2008 as a way to control abusive and deceptive credit card lending practices. It is intended as a followup to HR 5244, which passed the House earlier this year. The Senate has still not voted on S. 3252, which means there’s still time for citizens to voice their approval or disapproval.

Why Should I Support This Bill?

As we review The Two-Income Trap we’ll talk about how deregulation of the lending industry is one piece of the middle class insolvency puzzle.

While some are eager to point fingers at irresponsible consumers, I think Warren and Tyagi have shown that American overconsumption is largely a myth. What people are spending money on today, it turns out, are the necessities of life – not plasma TVs and Prada bags, but housing and related costs.

It follows that if you’ve bled the rock dry, those expenses end up on credit cards – and credit card companies are eager to punish consumers for the privilege.

One of the major differences between 1970 and today is how deep a hole one can dig under oneself with credit. Previously, for example, the limit of credit card interest rates was set at a federal level. With deregulation, these limits were set at a state level, and were only enforced on lenders within the state, no matter where their customers were.

So what happened? Credit card companies just moved to states whose rates favored them (have you wondered why so many credit card companies are based out of Delaware? That’s why).

Here are just some of the ways credit cards currently cheat Americans:

  • Universal default: even if you’re in good standing with that credit card, the company is permitted to raise rates related to behavior on other lines of credit – without notice. There is currently no limit on how high they can raise these penalty rates, either.
  • Two-cycle billing: your finance charge is calculated based on balances you’ve already paid off.
  • Sending bills out late and dinging customers for late fees as a result (even if the payment is postmarked by a certain date).
  • Distributing payments first to lower-interest debt. This will prevent you from paying down high-interest rate balances until you’ve paid off low-interest ones first.
  • Targeting young people who don’t have established credit

I would argue that as many as 90% of credit card companies engage in these practices. I know when I was in the market for a new credit card I struggled to find one that didn’t do two-cycle billing.

It may surprise many people (although it shouldn’t) to learn that credit card companies make more off you when you struggle to pay and rack up late fees then when you pay on time. Some would call this “business.” I call it exploitative.

All of this is made more challenging by the fact that a credit card contract is what’s called an adhesion contract – it’s a “take it or leave it” proposition. Since so many credit cards offer these terms, it’s not like a consumer can just go elsewhere. People who put this burden squarely on the shoulders of consumers forget this.

What Can I Do About This?

Consumer Reports’ publisher and advocacy group, Consumers Union, offers advice on protecting yourself and your credit.

If you’re in the market for a new credit card, I recommend using a site like Card Trak to find a card with the terms most favorable to you. Money magazine also does a regular feature on the lowest card interest rates. As a warning, some credit card rate searches are just there to shill for certain card companies – I was dismayed to find that bankrate.com, who I used to recommend, has started doing this. If you don’t find banks you’ve never heard of (like “First Tennessee” or “Pulaski”) in the first page of search results, then it’s probably not legit.

Most importantly, you need to urge your senators to pass this act. Consumers Union has established CreditCardReform.org to tell the story of this legislation. Here they explain a little bit more about the history of the legislation and invite you to take action by sending a letter to your senator to support S. 3252. I encourage you to individualize the message, especially if you have a personal story to share. Stories can be more powerful than facts.

Also, I apologize for the terrible picture on the CreditCardReform.org main page. It looks like that poor woman is about to be assaulted.

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