You must know about the five-star crash test rating system used in the automobile industry. Since it was implemented, the quality of new cars was considerably improved and the number of road accidents has slowed down. The idea of creating a similar system in respect of credit cards has long been stirring around but until today it has not been included into any of the reforms.
The 2008 February conference held at the Center for American Progress Action Fund showed Sen. Ron Wyden’s and Barack Obama’s determination to introduce the five-star concept for credit cards to make it easier for people to understand the basic lending policies and features. This would help them make wiser financial decisions and plan their card management in a more thoughtful and responsible manner.
Now, as US president, Barack Obama is to address the predatory credit practices by establishing the five-star rating system along with the Credit Card Bill of Rights. The five-star rating system requires a bank or card company to give a certain plastic stars from one to five based on its fairness and safety, which follows from application and contract information. This would allow potential applicants to quickly estimate whether the credit card is a worthy one without spending a day reading and trying to get the complicated fine print. Knowing the risk involved with the deal, a customer makes a rational application decision.
Back to February, 2008, the credit card industry criticized the five-star rating system on the ground that different credit consumers see and judge credit cards differently. It depends on lots of factors and on what’s most important for them. Some would place rewards before the interest rates and others, contrariwise, would choose in favor or lowest APRs due to their habit of carrying balances. As a result, one person’s five-star card might receive a one star rating with another person.
Also, for those with fair credit rating or poor credit management any card would be unsafe, so it is pointless to rate it anyway. The industry insisted that different consumer preferences and spending habits would make the system inapplicable to just all cardholders. One of their arguments against the introduction of the rating conception was the universal default clause which affects only portion of customers. To this, Wyden responded it was an issue concerning basic concepts of fairness and safety and was subject to debate at the Congress. On the whole the policy of universal default is seen by Wyden is unfair and far from basic commercial principles.
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