In a move much akin to Luke Skywalker’s attack run on the Death Star, President Obama signed the so-called “Credit Cardholder Bill of Rights” that will crackdown on the malpractice of card issuers. The bill passed in both the House and the Senate with overwhelming majorities in support, and seeks to institute several reforms that will help consumers with managing their debt. The bill will restrict credit card issuers from raising interest rates on existing balances, charging certain fees, and tacking on unreasonable penalties. But the question remains, will credit card issuers strike back?

Now I don’t think American Express CEO Kenneth Chenault will be initiating an assault on the ice planet Hoth in the near future, but credit card issuers have stated that the bill will further aggravate the credit crisis, and force banks and creditors to reinstall annual fees and raise interest rates for all card holders. But for all the whining card issuers who had a lower profit margin in 2008, I say, bring it on, the American people are prepared. While I believe history is doomed to repeat itself at some point, for the moment, Americans are being much more intelligent about spending.

For those who were/are reckless with their credit cards, even President Obama has said that the bill is not designed to protect the irresponsible. Just before signing the bill, Obama stated:

We’re here today for a bill that will make a big difference, [but] we do not excuse those, and do not condone folks who have acted irresponsibly

The recession has exposed the irresponsible borrowers more than ever before as Americans continue to lose their jobs and their homes, and have no means with which to repay credit card debt. However, card issuers haven’t done much to make it easier, with average credit card interest rates increasing from 12.02% to 13.08% from November 2008 to February 2009. I think most people would agree those were the toughest months of the recession, and while millions of Americans found their lives slipping away, card issuers were tightening their grasp. While I’m sure banks and creditors could muster all kinds of financial data providing justification for an interest rate hike in the heart of the recession, to the average American, and the average person, it’s just not right.

I think that the worst of the recession is over at this point, and I don’t believe we’ll be returning to the gloom that followed the Lehman Brothers collapse before economic conditions improve. I do think that all of this will happen again if the government doesn’t crackdown on the lending processes of banks and creditors. While credit card debt is a problem in this recession, it’s a problem that was magnified by the real cause of the recession, the collapse of the housing market. The recession has had one upside, and that is it exposed the most prominent weaknesses and brought them to light. Industries like newspapers were just struggling before the recession, and are now going down the drain because their business models were flawed. Even with the trauma, all the industries and companies that emerge from the recession will be much stronger because of it.

The recession was caused by irresponsible practices; banks and creditors were too eager to lend, and borrowers were too eager to borrow. The “Credit Cardholder Bill of Rights” is a start to reforming the same practices that caused the recession. If the tradeoff for Americans being more responsible with money is annual fees and higher interest rates, then I think it’s more than worth it. It might mean a slower return to a booming economy, but it will be a stronger economy based on real money instead of IOUs. 

Despite the restrictions, credit card issuers still have a wealth of resources at their disposal to ensure profit margins are secure. Ballooning interest rates are the foremost victims of the new bill, but a number of fees will remain unrestricted provided those fees are disclosed in clear and concise terms to customers. The most profitable of these fees include balance transfers, cash advances, and foreign transactions. In 2008, even with all the cutbacks on offers and reduced lines of credit, banks pulled in more than $169 billion from credit cards, of which about 60% was interest and 40% fees.

Once the new bill goes into effect, bank and creditor CEOs might not be sweeping the cash off their corporate office floors, but credit cards will remain lucrative and profitable regardless. There will be irresponsible borrowers forever, but here’s hoping the recession has taught us a lesson and more limitations on irresponsible banks and creditors pass into law before we forget the lesson we’ve learned. For now, the Card Issuer Empire, sensing its defeat, will begin construction of the next Death Star. Let’s hope Congressional Forces don’t spend too much time learning from Yoda.

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