Legislation In The Use of Credit Cards May Be Burdensome Instead of Beneficial

Credit cards are used for various purposes. It is handy and convenient for one thing, while it is the safest method of payment for many. Some used it to fund their new business or perhaps pay for their college tuition fees. Because of its popularity and versatility, credit cards need to be regulated especially when it comes to maintenance fees or general usage, making sure it is really helpful and not leading a person to debt. Crucial legislation is needed to be in place to make sure that credit cards remain to be beneficial instead of disadvantageous.

A look at a sample of this critical legislation may be worth paying attention to so that we may assess just how important laws are in ensuring that credit cards do allow us access to useful credit to better facilitate our lives. Lawmakers need also to do their research so that credit card users may be helped financially by their credit cards usage.

The Credit Card Accountability, Responsibility and Disclosure Act or CARD Act of 2009 passed by the United States Congress recently took effect on February 22, 2010. It is supposedly beneficial to the consumers, but it may very well turn out to be a burden.

The Act indirectly influenced credit card providers to increase their annual fees and cut back on their rewards. They do this to compensate for the losses they incur since they can no longer place a heavy fine on late payers. The Act regulates the extent to which banks can set the amount equivalent to the risks they face due to delayed payments. Usually, when you pay late, you will be penalized.

Moreover, the younger population ages 21 or below may find it difficult to apply for credit cards, requiring the consent of an adult like a parent or a guardian. The rationale behind this is the assumption that young people tend to be more reckless in their spending and often find themselves, spending more than they could afford. This is such a sweeping generalization that has no sound basis. Perhaps this may be true for some, but not for all. Some young people do depend on their credit cards to pay for their tuition fees. Without this handy option, they may need to work doubly hard to finance their schooling and may compromise their academics.

Another important setback is that Congress moved the date of the law’s implementation. This prevented the banks to adjust their policies to the new changes. Many consumers have opted to just closed their accounts and lessened their credit limits. The same act also prohibited the practice of “universal default,” which allows a credit card provider to increase their rates on a credit card who defaults on a loan or another credit card. This is a usual practice by credit card issuers all over the globe as part of their risk management plan.

Apparently, most rising entrepreneurs will no longer have the convenient option of relying on their credit cards to augment their start-up capital. Nonetheless, Congress smartly disapproved the lobbying of retailers to set a price control on interchange fees. Before deciding on this matter, Congress appointed the Government Accountability Office or GAO to further investigate the interchange fees. The opinions of many economists and researchers has been confirmed that interchange fee controls will only lead to an enormous subsidy for a few of the biggest retailers, making the consumers with the community banks ad credit unions carry the burden of higher fees for cardholders without any reduction in the prices. GAO studied the Australian experience when it decided to cap on its interchange fees.

(0) Comments Permalink