American consumers who depend upon their credit cards – that is, we should say, most every American – should be made well aware of the current legislation affecting unsecured lenders. As of February of 2010, companies who offer revolving consumer debts have new guidelines that they must uphold. While each one of the new statutes may not seem that important in and of itself, the spread of credit cards expanded so dramatically over the past two decades largely because there was virtually no governmental regulation whatsoever. A greater degree of transparency and responsibility among the revolving debt industry was one of President Barack Obama’s campaign promises, and a formal alteration of typical credit card practices was one of the first bold steps carried out by his administration.
By all accounts, the new laws have been successful in limiting the damage that could be done to careless borrowers who take out revolving debts without fully understanding what will happen to the loans. Specifically, the newly enacted statutes prohibit credit card companies from suddenly raising the interest rate without warning (there must now be a notice mailed to the borrower a month and a half prior to any changes) or piling on the penalties for consumers with less then stellar FICO credit scores. In addition, the changes to the credit card regulations demand that introductory rates stay steady for at least the first twelve months of an account. Also, in an attempt to help economically challenged households avoid unmanageable debts, monthly billing statements must show just how long it would take for the total balance to be paid through minimum monthly stipends. More damning, the billing statements must include how much would be paid in interest charges as well.
On the whole, given our country’s recent obsession with consumer debt, the new legislation has been positively received. It’s hard to argue that the modern American family does not tend to consume far more than the members produce. For over a decade, the average resident of the United States has borrowed more money than he or she has earned. Even though some debts (student loans, say, or a mortgage on a decently priced residence) could well be considered sound investments, the majority of deficit spending has been proven to center around lifestyle choices and unnecessary goods and services. Anything which may help Mr. and Mrs. America put an end to wasteful purchases sure to attract compound interest should be rightly lauded. Still, whenever the government enters the ever fluctuating world of consumer finance, there’s bound to be negative consequences as well.
Regarding President Obama’s credit card industry guidelines, the most commonly held complaint has been that the artificial freezes upon interest rates and the proportional hold on monetary penalties essentially precludes many poor credit borrowers from the opportunity to borrow without collateral. Credit card companies are out to make a profit, after all, and they know that a certain segment of their clientele shall never pay back the funds owed. Even with the restrictions now affecting Chapter 7 debt elimination bankruptcy, governmentally supported protection from most consumer debts still exists for those borrowers who don’t mind risking their household property. Furthermore, most states have a statute of limitations upon legal recovery of consumer loans which renders credit card bills and similar obligations null and void after only seven years. Without the interest rate manipulations and needless finance charges, many credit card companies have simply decided to avoid the high risk borrowers altogether. This still may be for the best, as far as our national economy goes, but it’s a tough pill to swallow for our most unfortunate citizens.
