David Kirkpatrick

February 23, 2010

New credit card regulations go into effect

But they only cover consumer credit, so keep a watch on business and corporate credit cards because the Truth in Lending Act does not cover that plastic.

From the link:

A batch of new restrictions aimed at curbing the most egregious credit card practices kick in Monday, but business owners will need to stay alert — the new rules don’t cover cards used for corporate purposes.

The bill Congress passed in May reforms the Truth in Lending Act, which governs only consumer credit. The measure fulfills a wish list of long-sought reforms. Issuers won’t be able to hike the interest rates on existing balances as long as customers pay their bills on time, and they’ll need to notify customers at least 45 days in advance of interest rate increases and most fee changes.

Those two changes alone will save consumers an estimated $10 billion annually, nonprofit research firm Pew estimated in a recent report.

“Regulation” is often a dirty word to small business owners, but few would object to new laws offering them similar protection. With bank loans and credit lines drying up, credit cards are one of the only sources left for fast capital injections.

Nearly 60% of business owners polled recently by the National Small Business Association said they use plastic for their capital needs — and 79% said the terms of their credit cards have grown worse in the past five years.

“Regulation, particularly in the long-term, is good for the consumer. But these regulations won’t be there for the small business owner,” says Curtis Arnold, founder of CardRatings.com. “They’re going to have to be on their toes to protect themselves.”

January 13, 2009

Bankruptcy reform is driving foreclosures

After the shenanigans of the last couple of years, I think the banking industry needs government oversight to stand on its neck for a year or two. Clearly bankers are incapable of taking charge of themselves.

Bankruptcy is a powerful tool that never should have been altered for individuals. It shouldn’t be abused, but sometimes it is necessary.

From the link:

There’s no shortage of blame for the mortgage crisis that drove the economy into the ditch.

But here’s a fresh culprit: the 2005 bankruptcy reform act, which was strongly pushed by the credit card industry.

So say three researchers at the Federal Reserve Bank of New York, who argue that the legislation shifted risk from credit card lenders to mortgage lenders, helping trigger the surge in home foreclosures.

Before Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, households could erase their unsecured debts by filing for Chapter 7 liquidation. That freed up income that distressed homeowners could use to make mortgage payments.

The new law, however, forced better-off households seeking bankruptcy protection to file under Chapter 13. That chapter requires homeowners to continue paying their unsecured lenders.

In other words, say the Fed researchers, cash-strapped homeowners who might have saved their homes by filing Chapter 7 are now much more likely to face foreclosure.

“Is it just coincidence that the surge in subprime foreclosures that has rocked financial markets came right after the bankruptcy reform in 2005?” they asked. “Is that surge just about falling home prices, bad mortgage decisions and weak economic conditions?

“No and no.”