Paying for the Poor Financial Habits of Others – The Credit Card Reform Bill

It’s doubtful that anyone could successfully argue against the need for some sort of reform to some of the credit card industry practices. While some of the changes included in the upcoming reform are going to benefit everyone – like having longer statement cycles to pay your bill without penalties and no more double cycle billing – the majority of the changes aren’t as great as they seem at first glance. The problem is with more government regulation of the finance industry, it appears that people who have been responsible with their personal finances are going to end up paying for the mistakes of others.

Who will qualify for credit cards?

Not many people currently have FICO scores greater than 750, but you will need a score that high to qualify for credit cards or home loans from banks once the reform has gone through. Even people who have been responsible with their finances may currently have credit scores under 750 – but they’ll be prevented from obtaining credit just like people who continuously spend more than they can afford to pay back.

If you do qualify for a credit card, you can bet that you’ll have to pay an annual fee in order to use it. Credit card companies have to cut fees in many areas under this reform, so they will compensate by raising fees that are still allowed – like annual fees.

Kids and Parents Graduate With College Debt

The reform will not allow people under 21 to obtain credit cards unless they have a parent co-sign. College kids will convince parents to co-sign because let’s face it, parents don’t want to worry that their kid’s don’t have access to emergency funds when they’re on the other side of the country at college, right? So yes, parents will give in and co-sign and parents will start experiencing the same credit card debt as college students upon graduation.

Higher Interest Rates

The new legislation will provide a provision that prevents companies from increasing interest rates after a missed payment for at least 60 days – but after that 60 days the companies can increase the interest rate to any "reasonable" rate they want. What if they increase their interest rates to 30% or more on over due balances? Your debt could double every three years even if you make your minimum payment.