New laws limiting creditors?

Here's an AP story courtesy of the Houston Chronicle that discusses a proposed law that would limit certain creditor practices that most of us agree are evil.

The law would

ban interest from being charged on any portion of a credit card debt that the consumer paid on time during a grace period.

There are credit cards that have a fair grace period policy, but it's not always easy to determine whether your creditor has given you one of them. It seems this law would force all creditors to abide by the same policy towards grace periods. I wonder if they'll force all creditors to have grace periods of the same length (30 days?).

Require increased interest rates to apply only to future debt on a credit card account, not to debt incurred prior to the increase.

I don't have a problem with this. The problem with creditors is that the agreements they have their customers sign are completely one-way and meaningless. The creditor is free to change any clause at will without being required to solicit written consent from the borrower. Normally I'd argue for to keep the government out of voluntary agreements between banks and their customers, but as far as I'm concerned, creditors engage in fraud and coercion when they change their existing credit card agreements at will. At least with this proposed part of the bill, some part of their fraud would be regulated.

Prohibit charging of interest on credit card account fees, such as late payment fees and fees for going over the credit limit.

This makes sense, too.

Prohibit charging of repeated over-limit fees for a single instance of exceeding a credit limit, and allow the fees to be charged only when the consumer's action, rather than a penalty, causes the limit to be exceeded.

Yeah, sure.

Ban so-called "pay-to-pay" fees, often charged when consumers make payments on their accounts by telephone. Such fees would be prohibited for any form of payment, including mail or electronic transfer.

I'm not so sure about this one. If it's vastly more expensive for a creditor to accept payments by phone than by mail or internet, why shouldn't the payer have to compensate them for that cost? The issue here is that people wait until the last minute to pay their bills, and they want to talk to a live person to make sure their payment will be credited immediately so they won't be hit with late fees. But that live person is expensive, especially if it's a U.S. based call center. In those rare instances where I've had an urgent payment that needed to be posted right away, I didn't object to paying a fee to make sure the payment posted immediately. Maybe this proposed law could require creditors to process internet payments immediately and credit mailed payments on their postmarked date.

Require payments to be applied first to the portion of the account balance with the highest interest rate.

I do think the consumer should have the right to decide how the principle part of their payments are distributed, and naturally they'd want to pay off the highest-rate debts first.

I'd only wish increased government regulation on my worst enemy. In this case, the creditors deserve it. Ultimately, they could throw out all of these clauses if they'd just say that creditors have to abide by the original signed contract they get from their borrowers, and that any changes require a signed agreement. A contract that allows one of the parties to change any part of the agreement at will isn't a contract at all. Consumers should sign a credit card agreement knowing precisely what their rates will be, what fees they'll be charged and under what circumstances. If that written contract changes for any reason, the creditor should be required to get the customer's signature agreeing to the changes.

If such a law were in place, I'd be able to tell you which creditors engage in the odious fee structures, interest hikes, grace period trickery, etc. that this new legislation is aiming to regulate. Then the market, rather than congress, could decide which credit cards deserve to survive, and the ones with the worst policies would go under. Right now, it's impossible to say whether a creditor will jack up your rates or add new fees at a moment's notice, so when asked "which creditors are evil?" the short answer is "all of them."

I guess all I can do for now is recommend the most consumer friendly credit card issuers, since I think they're the least likely to rewrite credit card agreements after the consumer has signed them. In particular I suspect BB&T is probably the most likely to treat it's customers fairly. (Based on their stated philosophy.)