New Credit Card Regulations

President4242

Thu Dec 18 18:13:51 -0800 2008

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That's a good begining.  I'd also like to see:  elimination of multiple terms on a given account, and private unemployment/death insurance being mandatory for all accounts.

That way, if the person becomes unemployed or dies, at least the next generation isn't saddled with inheritance of debt.

And elimination of multiple terms on a given account means they can't charge you more interest for taking money out of an ATM than for shopping at the store that sponsored the card.

Oh, and just for a good joke- one of those "we'll give you a consolidation loan to cut your credit card debt by up to 60%" adverts just popped up underneath this posting.

New Credit Card Regulations

Robert_

Thu Dec 18 19:36:09 -0800 2008

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Inheritance of debt?! Does that seriously happen (wherever you're from)?

I would assume that when a will is executed, the amount to be distributed is (assets - debts). If it's negative, it's as if the person has declared bankruptcy and there's no further recourse to creditors. That's the way it works here.

I don't think that forcing private insurance of any nature is sensible. If it's needed universally, it should be publicly administered. It's cheaper and much more efficient that way. (If they want to subcontract out to private underwriters, whatever, but it shouldn't be all private).

And for those of you who disagree, let's use public healthcare as an example. Currently, both a relative and myself need the same operation. She's a private hospital patient in Australia, and I'm a public patient. Total cost to her: ~$2000 (after insurance payout). Total cost to me: $250, and this could have been avoided. Avg time to get the operation in public system: 5 days. Her time in the private system: 5 weeks.

New Credit Card Regulations

Charles E Hill

Thu Dec 18 20:25:11 -0800 2008

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There is no inheritance of debt in the U.S.

New Credit Card Regulations

Robert_

Fri Dec 19 00:51:48 -0800 2008

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I didn't expect so... President4242, what do you mean?

New Credit Card Regulations

President4242

Fri Dec 19 07:37:04 -0800 2008

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Bullshit- happened to my father-in-law with a credit card opened secretly by his wife before her death.

The silly thing was- she asked for the insurance, then Providean went and canceled the death benefit on her.

New Credit Card Regulations

Anthony Sorace

Fri Dec 19 07:59:09 -0800 2008

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if you're dealing with an account opened under both names, that's a different story. if the woman in question opened this card in his name (presumably as well as hers) without his consent, she committed fraud. i'm aware of no legal principle which would hold your father-in-law liable if he wasn't on the account.

New Credit Card Regulations

President4242

Fri Dec 19 08:36:01 -0800 2008

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It wasn't- it was ONLY in her name.  And legal means NOTHING to the credit card companies as near as I can tell- they unilaterally change contract terms all the time, what you signed is not neccessarily what you've agreed to.  So it's good to see at least *some* regulatory oversight in this area.

Besides, they have millions for lawyers- and we struggled to come up with the $30,000 neccessary to settle the estate.

New Credit Card Regulations

Charles E Hill

Fri Dec 19 08:59:12 -0800 2008

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Some States -- I'm not sure if Oregon is one, I know Wisconsin is -- have quirks in their laws regarding credit cards, bankruptcy and marriage.  For example, you MUST get your spouse to sign off before anyone else is the primary beneficiary on insurance.  No "oh, this policy pays to his girlfriend" surprises.

Credit card accounts issued to one spouse are automatically considered "joint" property.  For example, from Wachovia:

Notice to MARRIED WISCONSIN RESIDENTS: No provision of any marital property agreement, unilateral statement or court decree adversely affects our rights, unless you give us a copy of such agreement, statement, or court order before we grant you credit, or we have actual knowledge of the adverse obligation. IF I AM A MARRIED WISCONSIN RESIDENT, CREDIT EXTENDED UNDER THIS ACCOUNT WILL BE INCURRED IN THE INTEREST OF MY MARRIAGE OR FAMILY.

But, California has specific clauses about credit cards issued in just one partner's name and the company can't tie it to the spouse automatically.

The issue here is marriage implies joint ownership of property, etc.

New Credit Card Regulations

President4242

Fri Dec 19 09:10:31 -0800 2008

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It is also an issue that could be completely remedied with the same type of private unemployment/debt insurance that mortgage companies require.

New Credit Card Regulations

Charles E Hill

Fri Dec 19 12:34:23 -0800 2008

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Yes, and I believe that is optionally availabe for credit cards.  I know I had it for mine, covering both loss of employment as well as death.  In the first case it would make my payments for me.  In the second, pay off the balance.  The premiums vary depending on the outstanding balance.

I don't agree with the government making a law to make it mandatory.  That is way too much of big brother wiping your nose for you.  The various card companies could make it mandatory, or at least opt-out instead of opt-in.  We have to have some level of personal responsibility and not try and put everyone on their mommy's apron strings their entire life.

New Credit Card Regulations

President4242

Fri Dec 19 12:48:19 -0800 2008

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And personal responsibility has worked out so well so far, hasn't it?  With con artists like Madoff getting away with billions?

The more I look at it, the more freedom and personal responsibility seem WAY overrated.

New Credit Card Regulations

Charles E Hill

Fri Dec 19 14:00:21 -0800 2008

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Very few people actually PRACTICE personal freedom and responsibility.  It certainly hasn't been a tenet of either the Republicans or Democrats for about a century.

Instead we have schools with "social promotion" and an entire generation that sits on their hands and waits for the government to help them instead of helping themselves -- or even trying in many cases.

I'm not willing to give up on personal responsibility.  The penalty of failure needs to actually be there for it to make a difference.

Don't misread me.  I'm not saying leave everyone to their own devices.  I am well aware of the benefits of community and government support.  All I'm saying is "moderation in all things".

Madoff needs to go to prison.  Quite possibly his wife and a few of his employees need to join him.  Their assets should be confiscated, liquidated and distributed to his victims.  There needs to be a thorough investigation of the SEC and the oversite agencies and punishment for incompetence, negligence or complicity needs to be meted out.  Changes need to be made to ensure this sort of thing doesn't happen again.

But that is a long way from a fully Nanny State.

New Credit Card Regulations

President4242

Fri Dec 19 14:26:49 -0800 2008

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If that's true, then the same thing needs to happen to the entire bloody financial industry- Madoff's fraud is by no means unique.

200 years of freedom and personal responsibility have led to a religion of "follow the guy who appears to be making the money".  The grand majority have neither the intelligence nor the education to manage their own financial affairs, and never will.

I'm not saying we need a full Nanny State.  I'm saying we need a safety net with NO holes, so that even the biggest idiot in the world can still feed his family after being conned.

New Credit Card Regulations

Charles E Hill

Fri Dec 19 14:53:27 -0800 2008

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If the bottom fell out, any idiot CAN feed their family.

For example, my family of 6 -- 2 adults, 3 adults kids in school and 1 new infant.  For Food Stamps we'd end up with $838 a month.  The infant qualifies us for WIC, which would add a bunch of cheese, milk, dried beans, tuna, cereal, juice, carrots and a few others.  All that is more than adequate.

Been there, done that and food was the least of our worries.

Reliable transportation is a must for getting and keeping a job.  Shelter -- a home -- where you aren't scared stiff you will have to move any day now is an absolute must for getting on your feet.

Gov't housing isn't the answer.  They have yet to figure out how to provide affordable housing without creating a slum/ghetto/hellhole.  I don't know the answer to this one, but I am certain that giving up on personal responsibility is not it.

Insurance? Bankrupcy?

colin g.

Fri Dec 19 13:21:33 -0800 2008

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Or by not marrying someone untrustworthy?

In seriousness though, I think a better remedy to your family's situation would be to make a national law requiring credit card obligations to be severable by the non-applicant partner on the applicant's death and require those debts to go through probate with the will of the applicant.

That way if the issuer wants to take the risk of death they can, or they can price the private death insurance into the interest rate.  I don't agree with requiring unemployment insurance on credit card balances.  We aren't completely a nanny state yet, but we are trying hard.

To your family's problem, I'm curious how Provident could get away with collecting premiums from your MIL through her card account, then fail to provide the covered benefit.  And why did you not insist your FIL declare bankrupcy to resolve his financial situation while providing him whatever material assistance he needed unofficially, instead of raising funds for him to just turn over to the card issuer?  I'm no fan of using bankrupcy to shirk obligations, but in this case I think it is reasonable and moral for your FIL to do given the actions of his wife.

Insurance? Bankrupcy?

President4242

Fri Dec 19 13:41:08 -0800 2008

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For one, I didn't know bankruptcy was an option.  For another, we were all in the various stages of grief.  The easiest way to handle it (there wasn't a will either) was to raise the funds asked for. 

As for "letting them get away with it", I'm not independently wealthy enough to go up against a major corporation in a court of law.  There WAS an updated contract in the mail rescinding the death benefit, postmarked three days before her death.  And the idea of spending millions to fight a $24,000 bill didn't seem very worth it.

We shouldn't dwell too long

colin g.

Fri Dec 19 14:14:01 -0800 2008

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What happened happened and best to not dwell too much.  But I sure would have paid a lawyer $1,000 to review the revised contract for legality and wiggle room, then send a strongly worded letter to the insurer that it is in their interest to pay or face probable litigation.  Whether I would have gone forward with it is another matter.  But in most circumstances you must be provided sufficient advanced warning before a company can change or cancel a contract or service agreement with you.  Shoot, you could have personally filed a small claims suit without a lawyer more to provide an annoyance and possible small payoff, than to be able to recover the bulk of the money.

regulation technicality

Thomas Lord

Fri Dec 19 14:30:14 -0800 2008

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This is such a technicality thing.

IF nearly all the credit card firms were providing unemployment insurance and requiring that borrowers buy such insurance from them and IF there was (and there likely would be) a case that such insurance would be less expensive with competition THEN there could be value in a regulation that allowed consumers to say "no, give me lower fees and a lower rate but in exchange here is a letter from my insurer."

As it stands, the issuers do price insurance of a sort into their calculations: namely, they look at the price that a defaulted credit obligation can fetch on the collection agency market. That price is discounted relative to the full pay-off amount and they factor the difference into the fees and interest. Alas, they apparently didn't entirely get that price right.....

-t

regulation technicality

colin g.

Fri Dec 19 15:05:27 -0800 2008

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Alas, they apparently didn't entirely get that price right.....

Oh, I imagine they weren't too far off.  The fact that they do such, doesn't diminish your lawful obligation to pay the debt unless discharged in bankrupcy.  So the CC company will definitely price defaults into the interest rate you pay for x years, and if you are unlucky enough to have to default, or just aren't moral enough to pay your bills, you better believe the CC company will continue to pursue you for payment.

New Credit Card Regulations

President4242

Fri Dec 19 07:35:51 -0800 2008

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Happened to my wife's family in 2001 with her mother.  We ended up helping her father to pay $6000 for the funeral and $24,000 in credit card debt.

New Credit Card Regulations

Anthony Sorace

Fri Dec 19 08:00:35 -0800 2008

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funeral costs are irrelevant: that is not debt incurred by the deceased, but by the living to deal with the deceased. credit card debt discussed in your other response thread.

why?

Thomas Lord

Fri Dec 19 14:16:53 -0800 2008

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The comments above got off to a bad start, in my opinion, with some confusion about the meaning of the word "inheritance" ultimately leading such highlights as a denigration of the concept of personal responsibility. Fine stuff.

Let's talk about some principled reasons for the new regulations:

Justified Reliance

Capitalists will tell you, time and again, that first and foremost they look for order and predictability. For example, they won't fund a business based on input X if the price of X is highly volatile unless, for example, demand for the output of the business is highly inelastic or unless the business has some special trick (such as a uniquely well positioned warehouse) to smooth out the price of X for its own consumption.

To a consumer, decades of experience indicate that while credit card rates vary over time and with circumstance, for an individual consumer the changes tend to be gradual barring extreme externalities. The credit card companies have marketed themselves to consumers in ways that tend to reinforce those expectations.

Furthermore, consumers as a class have had decades of experience within which 15-30 days (more, in long ago years) was a de facto grace period and that a mutually reassuring phone call with an issuer could smooth over any glitches.

During this period issuing firms became increasingly, palpably obfuscatory about the implications of the "fine print" of the contracts they offered. To say that they've engaged in deceptive marketing is to understate the case. Past legislation began to make some inroads into this but there remains work to be done.

During that same long history, firms developed an amazing challenge to civil liberties in the form of asymmetric information sharing among themselves - starting with but far from ending with the "big three" credit reporting agencies who to this day respond to legislation aimed at curbing the asymmetries in only the most perfunctory and ineffective ways.

Now, in recent years and especially in the immediate present, the financial institutions that back the credit card companies are looking anew at that fine print, and at their balance sheets. They want to bring to the fore some of that "fine print" and apply it to make their books look better but the only way to do so is to violate every reasonable expectation consumers have come to have. In some instances, as with "universal default", they wish to exercise that fine print in ways that if judged to adhere to the letter of the contracts would imply that the contracts themselves were, in common law terms, unconscionable -- that is, nullifiable by courts with potential punitive damages assessed against the issuing firms.

In those regards, this new legislation forestalls an inevitable class action against the issuing firms. It is a unilateral rewriting of the problematic contract terms, applied arbitrarily more or less across the board.

The issuing firms and the financial institutions may well claim to object to this but they doth protest too much: such legislation saves their butts from themselves by resolving a prisoner's dilemma they faced (now they all make the same changes at the same time without needing a court order to tell them to do so).

Capping Private Taxation of Retail Sales

As Sterling pointed out on the Agonist article I mentioned, the credit card firms have succeeded in creating a de facto currency for a huge percentage of transactions with the catch that every transaction in this alternative currency is privately taxed.

Capitalists and economists will correctly tell you that when they do business they look for tax-free routes for transactions first and, failing that, tend to not settle for transaction mediums with unpredictable transaction costs.

For example, you don't plan on shipping through a notoriously corrupt port where the port master or the dockers union or any other group will declare a possibly quite surprising price on the day of arrival.

Just so for consumers: decades of experience have informed them, more or less, of a historically slowly changing transaction tax on credit card transactions. This is "figured into" their economic calculations.

Now, during a time when the issuing firms and their financial backers are running scared because they have incompetently kept books, those folks are quick to scour the fine print and raise and collect as much of that private tax as they can. Thus, for example, the "one day late" penalties.

That is bad social policy and was clearly not the intent that formed in a meeting of the minds in the original contracts. Once again: either the courts sort it out later at greater expense to everyone or Congress does what it just did and legislatively avoids the class action disputes.

Consumers are in a Good Place With All This, On Balance

You'll hear lots of anecdotes like we saw in comments above about families harmed by getting into trouble with credit cards. I don't mean to diminish the seriousness of those problems. There is a flip-side, though.

Collections evasion and bankruptcy are not pleasant or easy on a family but they are figured into the calculations of many, many, many people.

It is rational for many, many, many consumers to in fact, at this or that juncture in their life, run up more credit card (more generally: unsecured) debt than they turn out to be good for, initially on the gamble that they will later be good for it and towards the end just to cash out the last of their credit line when they can.

That's the game the credit card companies implemented when they went into the transaction-hogging and unsecured credit business and nobody should blame consumers for playing the game they were offered.

But now look at the current landscape:

If two years ago there were many^3 people for whom a planned-probable-default was the rational choice then today the number is much, much larger.

The tighter credit card companies tighten the screws the more incentive they create for a nation of people standing in line at bankruptcy court but at the same time, no single firm has incentive to unilaterally not tighten the screws. If firm A is soft on debtors, firm B has better performance this quarter. If both are soft, that's a mild win for both. If one is soft and the other hard, the hard firm wins. If both are hard, both lose.

Once again, legislation actually helps the credit card firms resolve that prisoner's dilemma. (I'd separately argue that resolving similar prisoner's dilemmas is in fact one of the most legitimate uses of regulation there is. It's very good for keeping markets healthy when it does that.).

Summary: Sign of the Times but No Big Whoop

It's a sign of the times that all this comes to a head just now, in other words, but there are no losers on this map. They may not admit it but the creditor firms benefit from this at least as much as consumers. This is not seriously controversial legislation by a long shot.

-t