NPR tackled the new credit card bill that the president signed recently, pointing to its basis in the controversial field of behavioral economics. Basically, the idea is that, irrespective of how rational the option is, you’re more likely to choose something if it is presented to you first, or if you’re placed in the situation in which you have to spend more effort to not opt for a particular course of action.
For the new policy on credit card companies, this all means more information on the dangers of revolving debt, presented to cardholders upfront, and in bold. One such change will be a listing on each credit card statement identifying how long it will take to pay off a debt if just the minimum payment is made. But more concrete rules will constrict credit card companies: some types of fees are outright banned, some uses of data on a cardholder that’s peripheral to the lender-debtor relationship will be disallowed, and more advanced notice on changes to interest rates will be required for consumers.
Some consumer groups and anti-credit card activists are shouting “mission accomplished,” but those with debt will still need to equip themselves with the best possible tools to get out of the red. Why?
Credit card companies, as organizations that seek to maximize their profits, essentially fit the pool of eligible consumers for their product – the target – into a game with constraints. The federal government has changed the constraints, but the constraints haven’t disappeared, i.e., they can still indebt a cardholder. The change in the rules to this game force lenders to change their policies on different groups of cardholders because they need to manage the overall risk associated due to their total pool of customers. The financial pain will simply move to another location. Think, one type of fee banned, another type created, or another existing type of fee doubled. Interest rate hikes limited now? Well, then cardholders will just have to start off their relationship with the lender in the first place at a high interest rate, nearly double or more than what was offered in the deregulated years since the 1980s.
In short, those with credit card debt should not celebrate the changes. They will mark a step in the right direction towards an environment more favorable for the consumer, but now as in the coming months and years, those with credit card debt will need the best debt management tools and knowledge they can find to eliminate debt once and for all.
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
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