For my book Deceptive Money, I did a great deal of research on the credit industry and really what goes on behind the scenes with credit card companies and politicians. Politicians really love the credit industry because the “hush” money that is paid into their political campaigns for re-election. I refer to it as hush money because it is money paid to political campaigns to keep the politicians quiet so that the card companies can continue the abuse of consumers.

For years credit card companies have gotten away with the universal default clause. This is the clause that gives them the right to change your credit card agreement for any reason at any time. This gives them the right to raise your interest rate to 25% for no reason. Now why would politicians allow them to get away with this? Hush Money!

However, the public outcry became so great that the politicians had to start talking tough about reforming the credit card industry. After all, they had to look like they were doing something – they are elected officials. Fortunately for them, they didn’t have to take action. The federal regulators (not Congress) passed credit card reform RULES that would reform the credit card industry. However, they slated those rules to go into effect July 2010. With the power of the political soundbite, politicians were “outraged” that it was going to take so long. Thus they developed their own set of LAWS. These laws were nothing more than a duplicate of the rules. The good news for the politicians is that they had nothing to lose. The credit card companies were going to get reform anyway and the politicians had nothing to do with it.

So, these new laws were passed and boy did they do us all a favor. All of that outrage and these new laws go into effect February 2010. Regardless if it is July or February of next year, the credit card companies still have plenty of time to practice the universal default clause and raise rates as much as possible. Besides, they were at the end of this game of consumer abuse anyway. After the financial crisis, the old debt and credit mania wasn’t quite the same.

The best part of the new laws is how they are written. All of the good stuff in the laws designed to really help consumers only applies to fixed rate credit card rates. So, what have credit card companies done since the laws were passed? They simply changed the fixed rate cards to variable rate cards. Of course, they did so after raising the fixed rate. So many of the bigger provisions don’t even apply. However, the politicians look like they are reforming those mean old credit card companies.

What is better is how the variable rate cards work. They are tied to a benchmark and go higher or lower depending on the benchmark. Well guess where that benchmark is likely headed? That benchmark is likely headed much higher over the years. Thus credit card companies will make more money off of consumers. More money means more hush money! That is what I call Perfect Politics.

Just recently, a few of the politicians announced that they were “outraged” that credit card companies were taking advantage of this time prior to the laws going into effect. So, they were calling for the effective date to be moved from February 2010 to December 2009. It is almost comical. Your politicians hard at work to do the right thing.

Tags: Bob Brooks, Credit Card Companies, Deceptive Money, interest rates, politicians, Universal Default Clause