Managing Debt Better in Hard Economic Times

A credit cardholders’ bill of rights, as well as providing the right information at the right time, will help consumers manage their debt.

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“At a time when American people are being asked to come to the rescue of financial services all over the country […] how can we say ‘we know that [credit card] practices are unfair, but you must wait a year to fix them?’” asked Representative Carolyn Maloney (D-NY) at a Center for American Progress Action Fund event Wednesday morning.

At the event, CAPAF Executive Vice President Sarah Wartell presented a new report by Tim Westrich, “Putting Credit Card Debt on Notice,” which she said “offers technological solutions to help customers better manage their debt in the face of increasingly volatile market conditions.” Wartell said that by using technology such as text messaging—or a similarly rapid electronic method—a credit card issuer could provide consumers with helpful information at the moment he or she needs it most. The message, according to Westrich’s report, could provide clear information—including both the event, such as the due date, and the consequence for missing it—a late fee and an increase to the penalty rate.

Wartell said that this new method of giving better information should be done in addition to, not as a substitute for, efforts by Rep. Maloney to eliminate the worse problems in the credit card market through legislation. “In conjunction with legislation, these technologies could help stem abuses in the credit card industry,” said Maloney.

In December of last year, the Federal Reserve Board finalized regulations that mandated a number of reforms in the credit card industry. These reforms, however, are not slated to take effect until July 2010. Rep. Maloney has introduced a bill—the Credit Cardholders’ Bill of Rights Act—that moves up the starting date for many of these protections to three months after the bill is signed. These protections include preventing credit card companies from retroactively increasing interest rates on existing balances, giving 45 days’ notice of all interest rate changes, and ending several other billing practices that make it harder for cardholders to pay down their credit card debt.

While there was a broad consensus on the need for action, the panelists disagreed as to what form it should take. John Carey, chief administrative officer and executive vice president of Citi Cards, said that last year’s Federal Reserve regulatory action was sufficient, as it provided for both far-reaching consumer protection and flexibility if changes needed to be made in the future. Legislation, he noted, “would only make the rules more difficult to change if they do not work out.”

Responding to Carey’s assertion that customers only needed to be warned so many times, Travis Plunkett, legislative director for the Consumer Federation of America, said that it was the responsibility of lenders—credit card or otherwise—to provide their consumers with as much information as possible to guarantee that they have the tools available to be financially successful.

Beth Kobliner, author of Get a Financial Life: Personal Finance in Your Twenties and Thirties, said that nudging consumers to make smart decisions would be especially beneficial to young Americans. “Among 20- to 30-year-olds, surveys show that finances are a primary concern,” Kobliner said. She added that, on average, current 20- to 30-year-olds earn 10 percent less, adjusted for inflation, than members of their parents’ generation. They also spend almost 25 percent of their monthly income paying only the minimum payment on credit card debt. If this continues, Kobliner warned, “the financial debt that this age group will incur will be unthinkable.”

Education, early and often, is the key to guaranteeing that young adults sustain good financial practices. Action from both the credit card companies and Congress is necessary to “immediately fix the problems of the credit card industry,” said Plunkett.

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Avoiding the Hazards of Credit Card Debt


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