The Flip Side of the Credit Cardholders’ Bill of Rights

Congress voted last month to pass the so-called Credit Cardholders’ Bill of Rights. The law would change some arguably deceptive credit card industry tactics in favor of consumers. For example, credit cards could no longer raise interest rates just because you make a late payment on another loan or credit card, and they would have to stop applying payments to balances with the lowest APR first. We think this bill is great–although this Wall Street Journal article raises an interesting argument against the Cardholders’ Bill of Rights.

The author’s claim is that these practices factor into credit card lenders’ risk-based decisions on what to charge certain customers for credit. Take away the ability to charge the riskiest borrowers super-high interest rate and, the WSJ argues, you will dry up the competitive credit offers for low-risk borrowers.

Essentially, if the Cardholder’s Bill of Rights passes, credit card companies may stop offering 0% balances transfer and purchase offers all together, or simply raise the average APRs that everybody pays.

We say the bill’s benefits to consumers still outweighs these costs. Yes, this bill will change the way credit cards do business. Yes, the average cost of credit for consumers and small businesses may go up. At least, however, we’ll know what we are getting when we sign up for a new credit card offer and be less susceptible to fees and interest charges buried in fine print.