A lot has already been written citing Alan Greenspan, ex-head of the Federal Reserve, as one of the people most accountable for the country’s current economic problems.  Reportage on the tech bubble, the housing bubble, the systemic risk of unregulated Credit Default Swaps (CDS), and the extremely relaxed underwriting standards to mortgages habitually mention Greenspan’s policies as a primary contributor to these problems.  The fact that the U.S. government has had to step in to fix the credit card industry suggests that regulators under Greenspan were asleep at the wheel.  As head regulator, the Federal Reserve was in a position to regulate the excesses of the credit card industry for years.  Now that disaster has struck, the Federal Reserve finally came up with a new set of rules in December 2008 which would take effect in July 2010, but obviously, their regulation has come too late, as the United States Congress and President have already had to step in and do their jobs for them.

For fifteen years, credit card regulators have had it in their power to prohibit the excesses of the credit card industry.  At any time, they could have put rules in place that would have prevented arbitrary interest hikes or the creation of additional fees without rhyme or reason.  Now, law will force credit card companies to change their practices, but the government wouldn’t have had to take this kind of action if credit card regulators had been doing their job over the last decade and a half.  America is now, in essence, forced to make laws to regulate the credit card industry because our regulators completely failed to do so.

Since the passage of last week’s credit card legislation, it seems that everyone has an opinion as to how consumers will be affected and how the “new credit cards” will compare to the old.  Previously, I provided my opinion on each of the main components of this new credit card legislation. Now let’s talk specifically about how different consumer segments will be affected.

First let me start by saying that credit card companies are perhaps the most sophisticated entities when it comes to consumer financial products.  They have and use a lot of data when making decisions, and therefore their response to the new legislation will not be uniform across consumer segments.  In addition, it is important to point out that we are going to go through a transition period, during which credit card companies will experiment with different structures.  Once everything has settled, here is my expectation of how the “new credit cards” will compare to the old (i.e. the ones from a year ago):

As the name suggests, a university credit card is one in which the college or university has allowed one particular credit card company to offer a card in their name and to advertise on campus.  The deal is exclusive; only one credit card company gets these benefits.  Furthermore, the credit card company gets access to lists of students and alumni to whom they can advertise.  In return for this exclusive relationship, the college receives a fraction of each purchase made with that card.  Thus, if Bank of America has a deal with, say, Brown University, only Bank of America can advertise on campus, Brown University will give out contact information to Bank of America on its current and former students, and in return, Brown University will get some money every time someone uses the Brown University credit card.

If the relationship between universities and credit card companies was structured differently we would not be against school sponsored credit cards, but a school’s first responsibility should be to its students.  More specifically, the university should not encourage its students to accrue unwanted debt, and instead it should educate them and help them reach the best decisions for themselves.

Both houses of Congress have now signed off on a bill to amend the Truth in Lending Act, and now it’s off to the President’s desk where the legislation is anticipated to be signed into law.  At Wallet Blog, we have been covering the news on this bill for as it has evolved.  Now that it’s headed to President Obama for approval, we’d like to provide an in-depth analysis on the bill’s major features.  They are as follows:

APR Changes on Your Existing Balances:  Credit card companies won’t be allowed to raise interest rates on your existing credit card balance unless you are more than 60 days behind on your payments to them. If you get an APR hike because you were 60 days late, you will be able to get back your original rate, by making  payments on time for 6 months in a row.

Right now, as the country demands tougher restrictions on the credit card industry, and as the House has passed a much needed bill to that effect, the Senate has stalled the bill so as to piggyback amendments onto it.  Now, we understand that that grouping together related laws saves time and allows for the deal making that is part and parcel to cooperation across the aisles.  However, when the laws are totally unrelated, we are at odds to figure out just how this congressional procedure aids anyone.

The success of the credit card reform bill has prompted senators to attach their own pet projects to it.  In one case, the senate is attempting to piggyback an amendment that allows people to carry firearms into national parks – sponsored by Tom Coburn (R-OK).  Thus, this much needed credit card bill is being stalled because of something completely unrelated to it.  Why is the Senate wasting time on irrelevant amendments when we are in the middle of an economic crisis which demands immediate legislative action? 

Currently, a credit card reform bill is making its way through Capital Hill as law makers attempt to stem the tide of consumer complaints against credit card companies.  Having already passed through the House of Representatives (gaining 357 votes for the bill with only 70 votes against it), the popular bill entered the Senate floor nearly assured of success there.

As so often befalls popular bills, unrelated amendments have stalled the proposed bill which reached the floor of the Senate on Wednesday May 13th.  Some of the credit card proposals within the original bill would:

By July 2010, credit card companies will have to play by a new set of rules.  This new set of Fed regulations will curb abusive credit card practices and will fuel transparency within the credit card industry, thereby making it easier for consumers to understand the real costs of a credit card. Specifically, one of the new rules that will take effect in July will prohibit credit card companies from raising the interest rates on existing balances for consumers that pay on time.

On May 4th, the Federal Reserve rejected a request by Senators Schumer and Dodd that would force credit card companies to immediately halt interest rate increases on existing balances.  “We believe that issuers must be afforded sufficient time for implementation to allow for an orderly transition process that avoids unintended consequences, compliance difficulties and potential liabilities,” Fed Chairman Ben Bernanke wrote in a May 4 letter.

I’m crazy about books. Certifiably crazy. So when I realized I hadn’t completed my six-volume set of William Blake: The Illuminated Books, I feverishly scoured ABE Books and Amazon for the best book vendors for the cost. The winner was a bookseller in London, so I went to their secured Web site, entered my credit card number, and then squealed delightedly when book six of six arrived on my doorstep.

Imagine my surprise when I got my credit card bill that month and learned that my bargain shopping came with a 3-percent foreign transaction fee!

Recently, we suggested that the problem with credit card regulation was that financial companies are able to arbitrarily create fees, and that there is no regulation which would essentially stop the explosion of instances in which the customer can be charged extra money.  For example, unless you use a sophisticated credit card comparison tool, like Card Hub (owned by the same company as this blog), there is really no great way to compare one credit card against another.

Our suggestion was, and is, that the number of fees be limited so that financial products can be easily compared.  Lets take prepaid cards as an example. Obviously, a prepaid card company should be able to charge an activation and monthly fee.  They should be able to charge a transaction fee (i.e. a fee for every time that you use your prepaid card) and a customer service fee.  We are willing to accept perhaps one or two other fees, but beyond this, the explosion of fees does nothing but confuse customers and make them unable to judge the strengths of their plan against another.

Congress has once again taken up the banner of credit card reform. Chances are that we can expect some of the changes they propose to actually take effect. Some we agree with, especially those laws that prevent issuers from making unilateral changes to the consumer’s contract or those laws which create counterintuitive ways of charging their customers.

One proposal on the table, however, seems so worrisome that it borders on the ridiculous and that is the proposal to restrict the issuing of credit cards to those under 21 unless they have a parent or guardian backing them or unless they are able to pass a test of their financial “literacy.” Why is this nation so bent on avoiding the definition of a legal age of adulthood? At 18, aren’t people adults? They can vote in national elections to decide the President of the United States. If they win the lottery or land a high paying job, we let them keep their money—we don’t place it in the hands of a more financially “literate” guardian. We allow 18 year olds to go to the front lines of war zones, to hold an enemy in their sights and to make the life and death decision to pull the trigger. Even those who do not go to war, at 18 years old, can buy a gun. Heck, at 16 we allow people to drive 3000 pounds of metal out into traffic where they risk the lives of others as well as their own. Doesn’t responsibility for life and death decisions require more maturity than a card with $1000 balance?

Today’s consumer has a total of 13 credit obligations on record at a credit bureau. With so many obligations, consumers need up-to-date credit card tools and help more than ever before.

To that end, CardHub.com (owned by the same company as this blog), the world’s most innovative credit card portal, today announced the expansion of its “Tools and Help” section, which offers free and comprehensive advice and tools for U.S. consumers. This new source of credit card help is now available online.

It’s interesting that we never debate the need for a police force to regulate civic behavior.  We can all imagine that if, tomorrow, there simply were no more police officers, anarchy and chaos would be the likely result.  Yet, when it comes to our economy, we are able to entertain debate about the need for regulation without ever acknowledging that an economic market without regulation is just as volatile as a city without law enforcement.

We need regulation, this should never have been up for debate, and it is certainly obvious how much we need regulation given the various economic scandals that are the root causes of the current recession.  If there is to be debate, let it concern, instead, how to create regulation that levels the playing field between companies.  By regulating businesses and their products in such a way so as to make comparison possible, we would foster the competition and innovation that are key elements for a successful free market.

Back in December of 2008, we commented on Chase’s new policy of charging a monthly fee on customers that were promised a fixed APR for the life of their balance transfer. We found the policy to be troubling, to say the least, as it essentially breached the promise advertised to these customers when they applied for their Chase credit card. 

Recently, the state of New York has taken an active role in applying pressure to get Chase to change its policies.  Attorney General Cuomo said:

According to a recent CNN story, state unemployment agencies are making benefits available either immediately through a debit card or after a ten day waiting period through check. These agencies have loaded their debit cards with numerous little fees designed to nickel and dime anyone getting unemployment payments through this method.

If state unemployment agencies offered an immediate turnaround for providing the unemployment benefits regardless of whether the recipient chose the debit card option or the check option, there would be no problem.  Given that these benefits are going out to people who are unemployed, in many of these cases, the choice of waiting 10 days to get a check is really no choice at all.  Bills need to be paid, and food must be bought.  Having already waited for unemployment, once they get their benefits, they need them immediately.

Rewards programs have been used to lure in customers, but with the credit card crisis, the value of those rewards is being altered.  According to a letter that Citibank sent out to its customers, as of March 1, 2009, “ThankYou Network may be revised in a manner that may affect your ability to use the ThankYou Points you have already accumulated.” More specifically, “20,000 Thank You points used to get you a $250 gift card and now they only get you a $200 gift card” says Heather Stockburger, a Citibank credit card customer. This backpedaling and manipulation of the value of reward reinforces what Card Hub (owned by the same company as this blog) has been saying for some time:  cards with cash-back programs are better than mileage or points rewards cards because they give you what you earn as you go and do not store up your earnings in points systems that can be changed by the card issuer.

Citibank is not alone in altering their points system.  Reports from multiple sources now suggest that the rewards point systems are changing on cards issued by Chase, Discover, and American Express.  With these companies altering their points and miles rewards, membership is becoming significantly less rewarding.