Udall Harms Consumers

Senator Mark Udall pushed a law harming consumers, and now he is blaming other victims of his unjust law — credit card companies — for the harm that he caused.

As I wrote earlier this year, Udall advocated a law violating contracts between credit card companies and their customers. I summarized, “The new controls will have two main effects. They will ensure that the young and the poor have less access to credit. And they will make it harder for responsible cardholders to negotiate good terms.”

I didn’t write about another, short-term harm of the bill. Because Udall’s controls make it harder for credit card companies to charge irresponsible borrowers higher rates, some of those companies responded by charging some higher rates immediately, before the law went into effect. This is a predictable response. If a credit card company thinks a customer might become a problem, say by getting overextended and missing payments, Udall’s bill gave those companies the incentive to take action before the bill limited their ability to act consistent with their contract with the customer.

In other words, Udall screwed customers who might have faced higher rates in the future by sticking them with immediately higher rates.

This is a classic case of a legislator blaming his victims for the harmful consequences of unjust legislation.

So what is Udall’s response? Is it to admit his mistake and repeal the unjust law? Of course not. Now Udall is pushing a new law to hasten the implementation of the old law.

Credit card companies have probably already responded to the bill, so the new law will not save anybody from higher rates. Nor will it save anybody from the harms of the initial legislation. Because credit card companies will have a harder time raising rates on irresponsible borrowers, they will be less likely to issue cards to riskier clients. In other words, Udall’s bill screws the poor, the young, and those trying to get back on their financial feet. Udall will make sure that, rather than get less-favorable credit terms, some such people will get no credit terms.

As the Wall Street Journal explained on October 29:

But if customers are being taken to the cleaners, it is because U.S. lawmakers like Mr. Dodd sent them there. In May, Congress passed the Credit Card Accountability, Responsibility and Disclosure Act, which bars rate increases without a 45-day notification. To reduce their risk under this law, banks in the U.S. are rushing to raise rates before it takes effect in February. Thus the Senator’s latest political grandstand.

In the unlikely event that Mr. Dodd’s new legislation passes, banks would limit their risk in other ways, such as canceling cards or refusing to extend credit to marginal customers. The unavailability of credit can also be a burden on struggling families, not to mention having a depressive effect on the economy.

What’s amazing is that, even as he explains how his bill harmed consumers, he can’t stop crowing about it or making empty promises to fix it.

In an October 29 e-mail, Udall writes:

The last thing families and small businesses need is their credit card company jacking up rates with no warning – but that’s exactly what’s happening. In the first six months of this year – as Congress was writing common-sense reforms – credit card companies raised rates an average of 20 percent, according to one study. It’s wrong, families need immediate relief, and that’s why I’ve introduced two bills to put an end to credit card companies’ abuses. This is something I’ve been fighting for since I served in the U.S. House of Representatives, and I’m going to ensure we do everything in our power to prevent credit card companies from taking advantage of consumers. …

Earlier this year, we passed the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act) to prevent credit card companies from unfairly squeezing their customers with excessive rate hikes and predatory billing practices. That bill gave credit card companies until February of next year to implement many of the reforms. But instead of playing by the rules, credit card companies have been taking advantage of the implementation period to jack up already high interest rates even higher. The result is unfair rates that are further burdening families that were already struggling with debt.

I’ve introduced two bills to put a stop to this. One bill, which I introduced this week with Senate Banking Committee Chairman Chris Dodd, would freeze interest rates immediately, giving consumers some immediate relief. The second, which I introduced last week, would move up the date for reforms to go into effect by more than two months, to Dec. 1, 2009, preventing companies from gaming the system and protecting consumers who play by the rules. This is like the classic story of David vs. Goliath – and I’m happy to take on Goliath.

If Udall wishes to catch a glimpse of Goliath he need look no further than the mirror.

In a November 5 e-mail, Udall continues:

In May, the president signed sweeping new legislation to protect consumers from abusive credit practices.

The bill, which I cosponsored, gave credit card companies until February 2010 to institute common sense reforms, like requiring advance notice of interest-rate increases, banning the practice of universal default, and protections for young people.

Instead of using this “grace period” to update their computer systems and implement the new policies, credit card companies put the squeeze on hard working, responsible credit card users by unfairly jacking up their rates.

Udall issued a media release to the same effect.

Udall is incensed that his bill prompted credit card companies to raise rates in some cases. But he apparently cannot even conceive of solving the problem by repealing its cause: his own bill.

Unfortunately, Udall is not the only legislator playing this game. The November 5 Denver Daily reports:

With Colorado Congresswoman Betsy Markey leading the charge, the U.S. House yesterday voted to move up the deadline for credit card companies to comply with federal credit card reform legislation.

The 331-92 vote came after Markey, D-Fort Collins, expressed great anger and frustration over credit card companies changing agreements — including raising interest rates on consumers by as much as double — in anticipation of the legislation. …

“I am appalled at the complete and utter disdain with which credit card companies are treating their customers,” Markey said in a statement following the vote.

And I am appalled at the complete and utter disdain with which Senator Udall and Representative Markey are treating their constituents. Udall and Markey should stop hurting people.