House Passes Much Needed Credit Reform

Opponents say consumer options will be more limited.

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Today's guest post comes from Odysseas Papadimitriou, founder of Evolution Finance, which publishes the Wallet Blog:

This week, the House passed a bill that would affect the credit card industry by, among other things, getting rid of retroactive rate hikes and double-cycle billing. Double-cycle billing eliminates the interest-free period for consumers who move from paying their credit card balance in full to carrying a balance. (The Senate could pass a similar version of the bill next week.)

We support this bill because it promotes transparency in credit card terms. Double-cycle billing and retroactive rate hikes are ways in which credit card companies confuse the issue of how much the card will actually end up costing a consumer. They make it exceedingly difficult for consumers to look at the various plans being offered to them and to choose between them, because it becomes difficult to determine on what grounds someone should make that choice. Any laws that take away counter-intuitive fee determinations are good because they make fee plans easier to understand.

Opponents of the bill seem to understand the need for consumers to have multiple credit options. They do not seem, however, to understand that such practices hide the true cost of a credit card and therefore they do not allow the free market principles to get applied. The goal should be to make consumer comparison between the options an easier task instead of multiplying the variety of terms and conditions. Rep. Jeb Hensarling, R-Texas, betrays this kind of reasoning when he states, “We shouldn't take credit opportunities away. I just want consumers to have choices. I want there to be a competitive marketplace.”

While we appreciate Representative Hensarling’s sentiment, it has to be understood that credit card companies are not going to lose any revenue because they cannot charge their customers money through a rate plan which is, to put it plainly, sneaky. The kind of competition that we are supporting by letting companies do business in this way is one in which trickery and deception are rewarded. Ultimately, the market place would be much more competitive if consumers understood the fees associated with each credit card and could use a credit card comparison engine, like Card Hub (owned by the same company as the Wallet Blog), to decide which credit card is best for them.