Posted on February - 14 - 2011
Government Pushing for Simpler Credit Card Agreements
Elizabeth Warren, the financial expert assigned to start a new consumer protection agency that is responsible for protecting cardholders and other customers from abusive practices, continues her push for simpler credit card contracts. Rather than setting up new rules and regulations, she believes, it is better and easier to just require easy-to-read and simple to comprehend credit card agreements instead of the long and complex ones card companies now use.
Warren said in one of her most complete disclosures about the direction she wants the agency to take that the Credit Card Accountability Responsibility and Disclosure Act of 2009 relied too much on a strategy of prohibition. In other words, she explained, “The problem is that thou-shall-not rules do not fundamentally change the credit markets. Right now, there are a lot of lawyers who are working overtime to figure out how to render the CARD Act rules ineffective.”
So instead, she says, she wants to make it all super simple.
Otherwise, she says, credit card companies simply dissect the rules and figure out tricky and clever ways to get around them. She gave one example of a credit card company that was prohibited from raising cardholder interest rates if someone makes a late payment. To circumvent that rule the company starts off with a much higher rate. If you pay on time, they give you a rebate or reward in the form of a lower rate. So in essence they can still charge outrageously high rates to anybody who is late on a payment, and that defeats the purpose of punitive legislation.
“It is this simple: No customer should be asked to take out a loan without knowing the costs or the risks of the deal,” she said. “And every customer should be able to compare different financial products straight up.”
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