Credit Card Regulations to Change

14 Dec Credit Card Regulations to Change

The Federal Reserve Board is expected to impose new, consumer friendly credit card regulations at its meeting this Thursday.

Consumer advocates and credit card companies are still fighting over the provisions, mainly the effective date. Of course, consumers want the rules in place sooner rather than later.

Significant changes would prevent the credit card companies from applying payments only to the highest rate part of the balance. Also, there would be restraints on when penalty interest rates could be imposed on consumers.

Credit card contracts are adhesion contracts. We do not negotiate them, they are take it or leave it, written entirely by the credit card company lawyers.

Unfortunately, the Supreme Court upheld the validity of mandatory arbitration provisions in these contracts. That means you sign away your Constitutional right to a jury trial when you sign for a credit card. I prefer regulation by your neighbors, in the form of a jury trial deciding whether the contract provisions are valid. Currently, you get an arbitration panel picked by an arbitration company picked by – you guessed it – the credit card company.

The credit card contracts also have a standard provision that they can change any of the terms of the contract whenever they want. Many have a provision that you pay their attorney fees and costs, necessary to collect on the account, none have a provision that they will pay yours if you win.

My problem with the regulation advocates (see this post on Elizabeth Warren by Kansas bankruptcy attorney Jill MIchaux) is that they never explain why the imperfect regulation by the government is preferable to the imperfect regulation of the market.

I include the common law jury trial system as part of the free market.

I do not think too many juries would uphold a contract provision that allowed one party to change any of the terms of the contract whenever it felt like it.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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