(This article was submitted to The Washington Post as an Op-Ed on 01/24/2010. As a possible case of illegal government harassment of me, my wireless AT&T telephone bill exceeded $3000 during the billing period 01/26/2010 and 02/25/2010 with no satisfactory answers from AT&T for possibly hijacked phone calls against an internationally roaming phone number on my family account).
Much has been made about the recent credit card reform legislation and the associated regulations by the Federal Reserve. Quite necessarily, both these changes institute fair lending practices through more transparent disclosure requirements and curbs on lax lending through income verification. Still, Washington lacks clear thinking on the issue as is so well outlined in the PBS’s Frontline show called THE CARD GAME which is scheduled to be broadcast at 9.00 P.M on Tuesday, January 26, 2010.
In the program, Senator Shelby comes across as the most reasonable man and perhaps he can get a commonsense and comprehensive consumer credit reform legislation passed that is fair to the government, the consumers and the banks. It is important for the government to provide incentives for small community banks and credit unions to compete vigorously with pay day lenders in low-income neighborhoods where large banks rarely establish branches leading to adverse selection in the commercial banking sector.
A simple credit card approval could look as follows under a hypothetical credit card reform legislation implied by my example template below (all numbers in parentheses are particular to the customer named John Doe used in the template).
“Dear Mr. John Doe,
Your application for credit has been reviewed. We are happy to inform you that your application has been approved. You approved credit limit for this card is ($1000.00).
Current law requires that you be provided detailed disclosure of our decision and the associated standard terms and conditions which are applicable to all credit and debit card offering banks:
1. Your consolidated credit report shows that you have (10) credit cards against your name.Your outstanding credit card balance is ($20,000). Your total revolving credit line is ($40,000). Your total debt-to-income ratio based on the information you provided and verified by your consolidated credit report, including non-credit card debt, is (30%).
2. Your interest rate is (5.99%) on all balances carried forward into the next billing cycle. You are expected to pay at least the minimum balance by the due date each month.
3. You are allowed a grace period of 1 week beyond your due date three times. Beginning with the fourth time you fall behind making at least the minimum payment 1 week after the due date, your interest rate will rise by 1% for each such default.
4. The credit reporting agencies will be notified of delinquent payments to adjust your credit score accordingly. We will let you know by a phone call, email or mail 1 week before it is reported to give you an opportunity to dispute or stay current before your credit score is impacted.
5. We are obligated to verify your credit score and debt-to-income ratio every 3 months and send you a summary notification of that verification. If adverse changes result in your credit score and/or debt-to-income ratio, your interest rate can jump and you will be notified of your new rate one billing cycle in advance.
6. Check return fees will not exceed $39.00 and could be waived based on your standing with ABC Bank upon your request and at our discretion.
7. Your interest rate, under the cap imposed by the current law on all credit cards, will not exceed 29.99%.
8. The bank reserves the right to cancel your credit card and seek full payment at any time.
Thank you for considering ABC Bank for your credit card needs. Our customer service department can be reached at 1-800-123-4567, M-F 8-5.