One Thing The Credit Card Act Can’t Protect You From: Yourself

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Editor’s Note: The following post comes from partner site Dough Roller.

On February 22, the Credit Card Act went into effect with great fanfare. Politicians and consumer groups alike praised the law as a step forward toward leveling the playing field between credit card companies and consumers. President Obama described the law as empowering consumers: “Today, we are shifting the balance of power back to the consumer and we are holding the credit card companies accountable.”

We need to set the record straight: Consumers have always had power over their finances, including credit cards. To be sure, the Credit Card Act provides some useful consumer protections. For example, it restricts a credit card company’s ability to raise interest rates. It also eliminates a sneaky practice relating to how payments are applied to credit card balances. Before the Act, payments over the minimum payment were applied to low rate balances first, like on 0% balance transfer offers, leaving balances subject to higher rates still accruing interest.

But there are several things that the Credit Card Act did not do for consumers, and indeed, could not do. The reality is that the problem most American consumers have with credit cards aren’t the credit cards. The problem is the consumer. If you are blaming the credit card companies for your financial problems, you are focusing your attention in the wrong direction. So in the words of Michael Jackson, let’s take a look at the man in the mirror, and examine three core credit card issues that the Credit Card Act doesn’t address.

  1. Credit Card Debt: Whatever credit card debt you had before the Credit Card Act went into affect, you still have afterward. It may seem like an obvious point, but it’s worth focusing on. Credit card debt is the Achilles’ heal for far too many families. And the new law doesn’t change this one iota.
  2. Spending Habits: I’m going to go out on a limb here — the biggest problem consumers have with credit cards is their own spending habits, not the abusive practices of credit card companies. There are exceptions, to be sure, but we are far too quick to point the finger elsewhere. It’s easy for politicians and consumer groups to rally against “big corporations.” Imagine President Obama or some other politician looking into the camera and saying, “You have nobody but yourself to blame for the credit card debt you’re in.” That’s not going to happen, but it’s exactly what most of us need to hear. The Credit Card Act won’t change your spending habits, career choices or money management practices. And if you are in over your head with credit card debt, those are the things you need to focus on.
  3. Cost of Credit Cards: There are two kinds of credit card consumers: those that pay off their balances in full each month and those that don’t. In the industry, these folks are called deadbeats (because they never pay interest) and revolvers. For revolvers, credit cards are an expensive way to borrow money. They were expensive before the Credit Card Act, and they are expensive still today. With average interest rates in the double-digits, and some even exceeding 20%, credit cards are as costly today as they’ve ever been. And on top of high interest rates, many card issuers have added new fees and raised existing ones to offset the impact of some of the provisions of the Credit Card Act. This just goes to prove that there is no free lunch. But the point is that credit cards are an expensive way to finance anything.

The takeaway here is not that the Credit Card Act is a bad law. It does help some consumers in some situations. But the key is that we need to take ownership and responsibility of how we manage our finances, including credit cards and credit card debt.

I’m reading Stacy’s book, Life or Debt 2010. If you’ve never read it, you should. What I like best about the book is that it’s not a feel-good book, it’s a wake-up call. The question is, are we going to answer that call?

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