Saturday, June 25th, represented a seminal day for Bank of America credit card holders. It was Penalty Rate Increase Day. From that day forward, the penalty rate for card holders who pay their bill as little as one day late could rise to 29.99% on all future purchases. This is in addition to a late fee of up to $25 for the first time and $35 if there is a second slip within six months. Talk about a day late and a whole lot of dollars short...
After the tumultuous past few years of the Great Recession when banks and credit card companies slashed and burned millions of cardholders by closing accounts, lowering credit limits, raising interest rates and fees to unconscionable levels, virtually without warning, this may feel like same stuff, different day, but not this time.
The good news, if it can be considered good news, is that Bank of America's announcement, while not welcome, was made pursuant to new, more transparent procedures mandated by the Credit Card Accountability Responsibility and Disclosure (CARD) Act.
While Bank of America cardholders might not like what they read, it wasn't done in the same flash flood fashion of yesteryear where an unexpected notice could instantly cause an economic sea change that swamped their finances and threatened to sink their credit. Now there is a 45-day notice period; the increase doesn't impact existing balances; and cardholders have the right to opt out of the relationship with some five years to pay off existing balances. That's enough time to find another credit card or to negotiate with their other credit card companies to increase credit lines on existing accounts to make up the shortfall that will be caused by terminating their relationship with Bank of America.
Greater transparency, clarity and fairness in financial procedures and disclosures represent a genuine step toward raising the level of financial literacy in our nation. It begins to level the playing field in what has been a very unbalanced adhesive relationship. Though the new rules are not the silver bullet and definitely are a work in progress, this is how you eat an elephant—one bite at a time.
The CARD Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act were designed to address the imbalances and excesses of the past decade, and as I've argued before, the centerpiece of Dodd-Frank is the Consumer Financial Protection Bureau.
You might be saying to yourself, "OK, so even if I buy into the CARD Act, why do we need a new regulatory agency? Isn't that more money and greater bureaucracy at a time when we need to be cutting the budget and reducing government?" That is the position of the US Chamber of Commerce, the financial services industry and the GOP.
The reality is that, historically, federal regulatory authority in the financial services area has been dispersed among so many agencies with so many conflicting jurisdictions, fragmentation, decentralization and a lack of focus—all of which fostered a laissez-faire approach to oversight and enforcement. Put simply, until recently, the U.S. didn't have a regulator whose sole job was to protect consumers from financial predators. That's ultimately why the CARD Act and Dodd-Frank were necessary—because there were so many players with varying mandates, no one was paying attention.
For some GOP pro-business members of Congress, like House Financial Services Chairman Spencer Bachus, that wasn't such a bad thing: "In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks."