Do we Need a Credit Card "Bill of Rights"

US congressman Mark Udall thinks so; he has just presented legislation to the US Senate that out-lines his version of a "Credit Card Bill of Rights". The gist of the bill is to force credit card companies to send notice of a rate increase prior to raising your rates. However, should congressman Udall get his bill through the Senate as penned it will wipe out a lot of the fine print we see on credit card statements and applications.

For instance, the bill will freeze rates and terms on cards that are canceled by the credit issuer. This is so if the company revokes the card from the user they will be unable to hike rates and fees on the outstanding balances. The bill seeks to revoke the credit card issuers rights to raise rates for credit activities unrelated to their account also known as universal default. As if that weren't enough, the bill also seeks the halt of charging over the limit fees on approved transactions. Udall is very optimistic about his bill sighting support on both sides of the aisle.

Predictably, the bill is expected to meet fierce resistance from the credit card lobby. The argument is; "that without these necessary fees many people will have to do without credit cards and pay higher rates". Also, some in Congress are wondering if now is the right time to be passing financial legislation that could further injure the financial sector.

This writer believes that the time for these changes is long over due. The industry has been given ample time and warnings to "self-correct" and has failed to do so. The credit card industry is akin to the sub-prime mortgage industry before the collapse. If we have we not learned anything we have learned this; overcharging customers with shaky credit to produce volume is a recipe for disaster. Eventually the write-offs will increase and the economy will take the hit.

Just as in the mortgage market, the credit card industry needs to shift gears and bite the bullet. Instead of dreaming up elaborate new fees to raise revenues to cover increasing losses they should streamline their approvals to less deserving card applicants. Doing this they would lower their write-offs and be able to relax their fee structures for the deserving cardholders. Of coarse, this would result in lower revenues, lower corporate bonuses and threaten CEO jobs industry wide.

Ironically, this is almost exactly what we saw in the sub-prime mortgage market and chose to ignore. The mortgage giants stuck their head in the sand, sold their shares and waited for the collapse. We now find ourselves in a financial deja vu, the credit card industry has the chance to head off destruction by making the obvious changes. Unfortunately, this would require CEO's to take the pay cut and being fired for lower performances. This should be interesting to watch.

Aubrey Clark is an editor at Creditcardbanc.com and writes extensively on how to find and maintain low interest credit cards.