Tuesday, May 19, 2009

TANSTAAFL: Credit Card Edition; Creditworthy Borrowers Will Now Subsidize Riskiest Borrowers

NY TIMES -- Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years. Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.” (Bold added.)

HT: R Adams


At 5/20/2009 5:40 AM, Anonymous janet said...

Not only are the productive again subsidizing the non-productive but are actually penalized for it. Debit cards are next...then is no end in sight to the onslaught and attacks against wealth creation and capitalism in general. Anyone still think this Administration is not socialist?

At 5/20/2009 6:36 AM, Blogger 1 said...

I have to wonder if this is going to bring back the 'cash & carry' economy to one degree or another?

If so this isn't going to help the economy...

janet asks: "Anyone still think this Administration is not socialist?"...

I'm sure that there are still many millions of these clueless folks that won't accept the facts of life...

The Orange Grove: Obama's socialist playbook - From Chrysler bankruptcy to Souter replacement, he pushes left.by Richard Stegemeier
Retired CEO of UNOCAL

At 5/20/2009 7:57 AM, Anonymous ListenEllipse said...

I have heard that one of the problems plaguing America is that consumers have too much debt and don't save enough. But now Obama is proposing that we make it easier to get into credit card debt?

At 5/20/2009 8:26 AM, Anonymous AMATI NONYMUS said...

No! You are all wrong. Usually I am wrong, but this time it is U. The latest hit comes directly from Payment Pal with vicious attempt to replace other cards.

At 5/20/2009 9:14 AM, Anonymous Kevin said...

Are the credit card companies really this foolish?

I'm one of those customers that could end up hit. We do almost all our spending on our rewards card, then pay it off every WEEK. I never risk picking up any interest. The card companies make their money off the transaction fees.

OK, so what happens if they hit me with an annual fee, interest, or reduced rewards? I'm GONE... I'll either find another rewards card or I'll just go back to debit.

Now they don't get transaction fees either. That helps them how?

Worse yet, their charge-off rates go up because they are running off their credit-worthy clients and keeping those that are overloaded with toxic debt and about to stop making payments.

Surely they can't be so stupid (again).

At 5/20/2009 10:44 AM, Blogger Marko said...

The specialty of the Democratic Party in general has been doing things that sound good to people, but are actually a bad idea (in that they harm the people).

This has finally returned them to power. Unfortunately, it seems to take a decade or two for it to become clear to people that the ideas are actually harmful. I hate to have to go through this again and again.

This credit card thing is a typical example of this. Sounds great to regular folks - just lower the rate! Same with mileage standards - just raise the required mpg! Same with unions - make it impossible to fire people! Turns out not to be such a good idea, but voting majorities don't realize it for a while.

At 5/20/2009 11:18 AM, Blogger Tom Kat said...

So what is new w/ idea that people w/ good credit pay for those w/ bad credit? Aren't we paying for all the sub prime and alt A borrowers?

But it is stupid on part of the credit card companies to charge interest on outstanding balance, because unlike taxes, I can certainly stop using these cards as @Kevin above suggested, I will go back to debit.

I wonder if we will have any economy remaining after the dems are through with their 'empathy' and 'socialistic' experiments.

But then again, maybe it is a good thing for the country. 8 years of the neo-cons followed by at least 4 years of their brethren on the other side of the aisle, should teach us never to allow the fringes to dominate our political spectrum.

At 5/20/2009 11:23 AM, Blogger Patrick said...

"but voting majorities don't realize it for a while."

Or, if you are a master of political spin, it is never realized. You just blame something else as the reason for failure.

Even better if the claim can't be substantiated like: "we wouldn't have been in this mess if we just had MORE regulation."

At 5/20/2009 12:50 PM, Blogger KauaiMark said...

I'll just do a "Dave Ramsey" on these bozos and do without.

Cash and debit cards only, suckers!

At 5/20/2009 5:40 PM, Anonymous Dr. T said...

"Those that manage their credit well will in some degree subsidize those that have credit problems.”

I agree with Kevin. Any credit card company executive that spouts such nonsense should be fired. If Congress intervenes as stated, the proper response is to dump the highest risk cardholders. Screwing the people with the best credit is a surefire way of losing money, because those customers will be valued by competing credit card companies.

At 11/28/2009 1:40 PM, Blogger juan said...

The regulation of these companies is a good thing, but Congress was stupid in not enacting these laws immediately. They thought they were giving the credit card companies time to adjust to the new regulations; instead they gave them time to adjust our interest rates before laws take effect. My American Express Card went from 9.9% to 28% in one statement.


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