Credit Card Reform Prelude to 12b-1 Reform?

Any good trader knows the trend is their friend.

Astute mutual fund shareholders who know the devastating impact 12b-1 fees can have on their total fund returns should now take note of the exceptional vote in the U.S. Congress today regarding the severe reform of the US credit card industry.

This exceptional legislation pushes bank the powerful banking and credit card lobby which has been setting the rules for decades. This lobby set the regulations and laws which govern the most common credit card practices which unilaterally favored the bank-credit card business against individual consumers.

The 357 to 70 vote in favor of reforming predatory credit card practices may indicate what lies ahead if individual shareholders and other retirement, 401(k) and consumer groups can push the exact same reform themes with some of the same Congresspeople later this year when 12b-1 fee reform is considered by the SEC.

Indeed the exact same quote from Senator Dodd could easily apply to 12b-1 reform.

In today's vote, Senator Dodd said the following.

""This is a unique opportunity to end abusive practices that afflict millions of families across the nation, to contribute to our economic recovery and to take a stand for American consumers," Sen. Christopher Dodd, chairman of the Senate Banking Committee and the bill's primary sponsor."

His exact words could be used to describe the high fees which are charged to mutual fund shareholders. The big difference is that mutual funds are used for retirement, while credit cards are used for smaller items, many of which are not necessities.

Unfortunately, retirement is a necessity. Worse, the decline in housing values combined with portfolio losses has been the one-two punch to millions of Americans.

What Senator Dodd noted and the other 357 member of the House voted on indicated the popular sentiment that individual Americans do not want to make credit card companies rich. They also do not want to subsidize wasteful spending by mutual funds which are paid for using mandatory 12b-1 fees. In too many cases, these fees only subsidize fund marketing efforts which benefit salespeople, but do not reduce fund expense ratios.

In effect, this means shareholders are subsidizing mutual fund marketing activities which raises their costs, while reducing their own fund's returns.

That sounds like a win-win situation for the mutual fund industry.

So maybe if this popular sentiment can be kept alive until the fall, mutual fund shareholders can help reshape the stodgy fund industry by curtailing waste, injecting competition and regain control over more of their own money.

All this can be done by reducing 12b-1 fees.

--Chuck Epstein
cepstein@prodigy.net