Opinion: Don't Freeze Card Card Rates

(Nov. 24) -- This past May, Congress passed the most sweeping credit card reforms in history in order to better protect consumers. Now various consumer groups are calling for policymakers to immediately freeze credit card rates. As hard as it may be to believe, consumers actually lose under that scenario.

Because of the bad economy, borrowers are defaulting on their credit card loans in record numbers. That leaves lenders with two choices: increase the price of credit to cover the increased risk, or close down accounts.

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OPPOSING VIEW: Credit card consumers need relief now, says Pam Banks of Consumers Union.
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If you freeze credit card rates, then lenders are left with only one option -- close accounts and dramatically scale down available credit for millions of Americans, all of this coming at a time when our economy can least afford it.

It's hard to see how consumers -- many of whom handle their credit responsibly and pay their bills on time -- would actually benefit from this.

And more importantly, making such a change is not even necessary. Congress has already acted to protect consumers in this area by allowing consumers to just say "NO" to interest rate increases.

To provide consumers with additional protections while doing their best not to cut off the flow of credit, Congress passed a law that was implemented in phases. The first part of the law -- and the most important for consumers right now -- went into effect in August and provides every cardholder with 45 days advance notice of any rate increase. Consumers have the option to say no, close their accounts and pay off the remainder of their balances at their previous rate.

So, while lenders understand the hardships borrowers face in these troubled times, it is the consumer who is in the driver's seat here. Just say no, and you will not be subject to any rate increase. It's as simple as that.

Meanwhile, lenders will continue to take the necessary steps to keep the flow of responsible credit out there, despite the record losses they are experiencing. They will work aggressively to implement the broad mandates of the recently enacted credit card law as soon as possible.

That law requires enormous changes to the operations of lenders that affect hundreds of millions of Americans. It's a complicated process, and we have to get it done right, or consumers will face even greater hardship in the form of mistaken statements, reduced access to credit and significant confusion, among other things.

It's important to let the implementation process Congress outlined -- the bulk of which goes into effect in February -- take its course.
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Kenneth J. Clayton is senior vice president of credit card policy at the American Bankers Association.