Disagree With Some Part of Senate Credit Card Bill

[erpowers]

Earlier today I saw a report about a new Senate bill aimed at credit card companies. According to the story credit card companies would not be allowed to raise the interest rate of anyone who is late paying their bill unless that person is 60 days late. I think credit card companies should be allowed to raise someone's interest rate if they are late paying their bill, even if the person is only a few days late. My reasons for this are first, credit card companies inform people of the fact that their interest rate will go up if they are late with a payment. The companies even tell people the rate they will be forced to pay if they are late. Second, I do not see anything wrong with increasing someone's interest rate if they are late with a payment.

I think Congress should make credit card companies end the practice of declaring a person's payment late if the payment arrived at the company on the right date, but not at a particular time. I do not think it is possible for even the post office people to know the exact time that a letter will get to a place. Also, Congress should prevent credit card companies from raising the interest rates of people who have never been late paying their bills.

[imdjh]

1. What is the rationale?

If we can agree that the only legitimate goal of a creditor is to be repaid at the rate of interest agreed upon at the time of the loan, meaning the rate at which the loan was made rather than a penalty rate, then I do not see how raising the interest rate of a person who has paid late furthers that goal.

I think we need to look at the history of credit for a moment. What we all know as the standard mortgage, or property secured loan, is a recent standard because the other types and practices of lending have been outlawed. For example, the type of mortgage once common in which the creditor held the title to the property until it was paid in full, only then did the property transfer to the buyer/borrower. This allowed the creditor to evict the purchaser for nonpayment, and to keep any equity in the home, because the home belonged to the creditor the whole time. This kind of mortgage is illegal. Another mortgage practice which is either illegal or no longer practiced because no court would enforce it, is the escalation clause in which the lender can call the loan due for a variety of reasons including late payment, or loss of value as in today's market.

Credit card companies do not increase interest rates with the expectation that the borrower will continue to pay the loan at the increased rate. They do it to force the borrower to pay off one line of credit with another- to shift the risk to another lender. While that makes sense from the lender's point of view, it's still just a way for it to get out of the original agreement. Moreover, because credit card lender play musical customers by selling portfolios to each other and acquiring each other, the borrower often finds himself with no option to do what the lender wants him to do. You started out with a Chase card and a Providian card, and you could transfer the debt from Chase to Providian, but now you can't because Chase bought Providian and doesn't permit balance transfers from one Chase account to another.

Raising the interest rate doesn't help the consumer meet his original obligation. All it does is allow the lender to gouge the consumer as he scrambles to find another lender, or spirals down to bankruptcy. How exactly is that different than a loan shark threatening to break the watchmaker's wrist so he can't work?