Credit Card Rule Changes

by Jay Fleischman, Esq.

August 13, 2008

Have you transferred a balance on one credit card to a new one with a zero per cent introductory rate?

Well, me too.

In the recent days of easy money, credit card and otherwise, if you followed the rules, you could shuffle balances from one zero per cent offer to the next, and not pay interest on your credit card balance.

New Federal Reserve Board rules will make this practice more difficult.

Yes, if you play the game right, without any mistakes, you win and the credit card company loses.  But, if you are ADD like me, and make one late payment, out goes the teaser rate and in comes the 20% to 30% normal rate.  At least until you transfer the balance again.

Now, the Fed wants to prevent the credit card companies from charging a late fee until a payment is 30 days, not 30 seconds, late.

Another new rule would require the company to apply payments to the highest interest balance on the card, instead of the current reverse practice. Of course, the credit card companies are screaming bloody murder.  The proposed Fed credit card rules will cost them 10.6 billion dollars, says Chase.

It does seem beyond the understanding of most government employees that restricting profit in one area will produce changes in other areas by the regulated business.  So, there is some validity that the new rules will result in less credit availability to lower income people.

The problem starts with adhesion contracts.

Which is most of what we sign as consumers.  The credit card company does not sit down with you and negotiate, they say, take it or leave it.  Like mortgages, life and health insurance contracts, vehicle loans, and so on.

Abuses occur,  consumers are stuck by the terms of the contract that they signed, and then the calls start for the government to fix it.

As I have blogged before, I trust the people before the government.  The law about being held to the terms of a contract you sign goes back to the days of Henry VIII, centuries before adhesion contracts.

Having a jury determine, under the common law, whether the terms of the adhesion contract should be imposed on the consumer would be a far better reform than any government intervention in the form of Federal Reserve credit card rule changes.

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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.

Last modified: October 22, 2012