How The Credit CARD Act Of 2009 Might Be A Bad Deal.

A lock down on credit cards may not be as good as it sounds...

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 has received much favorable press since it was enacted, and rightfully so in many cases.

There have been cases where unethical credit card companies have attempted to skirt the new regulations, but here’s another why in which the new regulations may negatively impact credit card users.

Part of the CARD Act is meant to put an end to unfair rate hikes and interest billing cycles, but it also aims to end the age of giving a credit card to anyone with a pulse.

Don’t get me wrong, I think that’s a worthy and noble intent. But there are destined to be people who get caught in the middle – who need access to credit, but really shouldn’t have it. I say they’re in the middle because they are in between qualifying for a credit card and not having to depend on one.

Many of these people are those who have simple not put aside savings in an emergency savings account. The result is that they are caught without access to cash or credit when their income suddenly drops or ends completely.

As John Ulzheimer, president of consumer education for Credit.com, says:

“We’re headed down the road where if you can’t verify your income, you can’t get a credit card. It’s going to affect the unemployed and the ability of small businesses to hire people and fund capital purchases. That all has a trickle-down effect to the economy.”

Again, I think this is true but it’s also part of a necessary pain. If you can’t afford to pay off your credit card balance every month, then you can’t afford the credit card. It’s that simple. And shouldn’t we only be giving credit (or loans in general) to those who can afford to pay it back? Doing otherwise is what got the economy in the mess it’s in – the push for “affordable housing” led to sub-prime lending, which has brought us to trillions of dollars in loans that can’t be repaid.

The sad truth is that too many people have become accustomed to thinking that credit cards are their emergency savings plan.

Consider that, according to a Consumer Reports survey conducted in 2009, 30% of consumers had credit card debt of $10,000 or more, and that 44% of them responded that they would need their credit cards to meet monthly expenses over a six-month period if their income became disrupted.

So, when the new CARD Act goes into effect on February 22nd, there are going to be a lot of people caught in lower available credit limits, or no access to credit cards, all of which will probably lead to further hobbling the economy at least in the near term. But I think it’s a good thing in the long term if we can get people to create and fund their own emergency savings, say in a high yield savings account like ING (click here for a free $25 referral code), and stop relying solely on credit cards as a financial life line.

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