Early this morning in How The Citi-Grinch Stole Christmas (and Why It’s a Good Thing) I wrote If ever there were screams of “Please Regulate Me” these actions by First Premier and Citigroup must be at the top of the list.

Well, that was fast.

Dodd introduces bill to freeze credit-card rates

Although Dodd has talked about this before, I was amused to see Dodd introduces bill to freeze credit-card rates at 3:16 PM today.

Senate Banking Committee Chairman Christopher Dodd on Monday introduced legislation that would temporarily freeze credit-card interest rates on existing balances, after saying that financial institutions weren’t supporting a new credit-card law.

“No sooner had it been signed into law, credit-card companies were looking for ways to get around the protections this Congress and the American people demanded,” said the Connecticut Democrat. “This bill would end those abuses and further protect customers today.”

Congress in May approved a credit-card law, known as the Credit Card Accountability, Responsibility, and Disclosure Act, to crack down on abusive practices by credit-card issuers. Dodd’s legislation would freeze rates on existing balances until the remaining provisions of the CARD act go into effect by February, at the latest.

Specifically, the CARD law would only allow interest rate hikes on existing balances based on limited conditions, such as when promotional rates expire or when a cardholder is late on a payment. The law also bans deceptive practices and includes a number of new transparency measures, including a provision that prohibits interest-rate changes without 45 days of advance notice.

Bankers opposition

A bank-industry group expressed concern about the House legislation, known as the Expedited CARD Reform for Consumers Act of 2009. A senior vice president for the American Bankers Association said it would be “extremely difficult, if not impossible” for them to meet the new Dec. 1 deadline.

“Moving up the implementation date will place additional strain on institutions and is likely to further restrict access to credit at a time when consumers, small businesses and the broader economy need it the most,” Dodd said.

What’s The Point?

If moving up the legislation will do what Dodd says then what is the point of the legislation?

Citigroup and others have been scrambling to beat the clock, probably well aware of Dodd’s legislation in advance.

The only way the legislation will have much meaning is if it is retroactive.

Bear in mind I am in favor of a free market, but we don’t have anything approaching that. Banks started extending credit to obvious deadbeats because of the Bankruptcy Reform Act of 2005. The sole intent of that legislation was to make people debt slaves forever.

Rather than calling for rate cap legislation, I am calling for sound money and establishment abolishing the Fed. If we do that, rates will take care of themselves.

By the way, there was an error in one of the emails that I posted.

“MM” writes: … So, while the default rate is 33%; the loss is $270. [Correction: on one account it would be $70 – Mish]

One More Email for the Road

Steve writes ….

Hi, I just read the article about Citi raising rates. I just got the letter and I do not even have their card.


It’s A Good Thing

Unlike Senator Dodd, I think that if these rate-jacks curtail consumer credit, it will be a good thing, not a bad one.

As I said previously …

The odds are this will be the final incentive for many to get out of the debt slavery trap they are in. The more people that cut up their cards and tell banks to go to hell, the better off we will all be, and that’s a good thing.

Email From Citi’s Vice President, Public Affairs

This morning, in response to Citi-Grinch I received the following Email from Citi’s Vice President, Public Affairs:

Hi Mr. Shedlock,

I have read your blog posting from Mish’s Global Economic Trend Analysis, which appeared earlier today.

I am wondering if we can have a background discussion at your convenience.

Best regards,

Samuel Wang
Vice President, Public Affairs
153 East 53rd Street
New York, New York 10022

Cordial Conversation

I gave Mr. Wang a call and the conversation was quite cordial. He explained that customers could opt out of the rate hikes, and that in some instances consumers could keep using their card up to the expiration date of the card at their old rate.

What I asked Mr Wang:

  • How many total cards do you have?
  • How many received the letter?
  • What percentage could keep using the card at the old rate until the card expiration date?
  • What is the percentage breakdown by FICO score of those those receiving rate hikes or lowered credit limits?
  • Is Citigroup setting up to exit the credit card business?

Whatever answers I get, I will post.

It would also be nice to see what Chase, Bank of America, and MNBA are doing with their customers.

Opting Out

CreditCards.Com explains Opt-Out procedures and other information consumers should know in Consumer Q and A: Credit card law, phase 1, debuts.

Q. When can consumers begin to use their opt-out rights for credit card changes?

A. Any notices of changes in terms received on or after Aug. 20, 2009, must contain information about consumers’ new right to opt out of (or right to cancel) increases in interest rates, fees, finance charges and certain other changes in credit card agreements.

Opting out means the consumer can no longer make purchases with the card. Instead, the old, lower interest rate will be applied while the cardholder repays the balance. There are three methods for repaying balances on accounts that have been closed by consumers choosing to reject changes. Issuers can either:

  • Collect the balance over at least five years.
  • Charge a minimum payment amount that is up to twice the percentage charged before the change in terms.
  • Use the same repayment plan used on the account at the time the consumer rejects the change in terms.

Credit card issuers cannot demand payment in full if consumers choose to opt out of changes to their accounts.

Q. Do consumers have the right to opt out of all changes in terms?

A. No. The Federal Reserve has ruled that consumers cannot opt out of increases in , reductions in or interest rate hikes triggered when cardholders are more than 60 days late paying monthly bills. In addition, interest rates increased by virtue of increases in the on variable rate credit cards also are not eligible for opt out.

There is more useful information about your credit card rights in the link.

Mike “Mish” Shedlock
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