Federal credit card reform bill has its problems

Recent credit card legislation may prove to be a big relief for many Americans who have trouble keeping up with the rapid interest rate changes, hidden fees and aggressive collection efforts. Or not.

Many industry watchdogs believe the bill, currently alive in both a Senate and House edition, will not meet its original expectations. Citizens who have been watching the bill's progress with hopes of instant relief may want to start paying even closer attention. It should be noted that true debt relief will rarely come as the result of government action alone and that in the end, the best solution for a reprieve from the pressures of mounting debt is to seek legal advice from a reputable bankruptcy attorney.

One of the facets of the bill that will benefit burdened card holders is the reinstatement of grace periods. As you may know, credit card companies have become overly serious about their due dates. Granted, a deadline is a deadline, however, many companies apply late fees even if your bill arrives on time but spends a few days being processed through their bureaucracy.

This tactic alone creates a chain reaction of profit for the creditor. In order to avoid a steep penalty, you may be forced to send in any amount, maybe even less than the minimum payment. Thus, your debt perpetuates, as very little of that small payment goes to the principle. However, if you had another couple of days you can afford to send in more and actually make a dent in the amount owed. Credit card companies understand this psychology and are very skilled at leveraging it.

Both versions of the bill have grace period language that ranges from 30 to 60 days.

Card holders can also expect some help from time periods applied to interest rate increases. If you miss a payment and your rate jumps, the reform bill says that the rate must remain intact for only a few months. If you pay on time for six months (as the current version of both versions state), then your rate must return to the original, lower percentage. And, if you are able to pay more than the minimum amount owed, the credit card company must apply the overage to whatever charges are subject to the higher interest rate, such as cash advances. Previously, they would apply overages as they saw fit.

The problems with the legislation start with its timing. To no surprise, credit card companies are mounting the argument that they will not be able to implement changes until well into 2010. Actually, the government is not helping matters much, as they also agree that most changes won't take effect until 2010.

Additionally, and almost sickeningly, credit card companies are currently increasing fees across the board to get as much money as possible before the government action comes bearing down on them. And the reform bill is powerless to prevent it. Card lenders are also hurrying to get underway with standard-setting consumer research studies to learn as much as possible about everyone who holds and applies for a credit card. That data will surely be used to create new, even more cleverly-positioned marketing pitches down the road that will surely find a way to circumvent the results of the reform actions.

Lastly, they will simply start to deny people credit and raise rates on those that do qualify, which will do nothing but delay the recovery in consumer spending. Anything to make a buck.

But hey, membership has its privileges, right?