Practices of credit card issuers have led to many complaints lately, most relating to various changes that issuing banks can make at will, and without notifying the cardholders. Now, purportedly, Congress has taken the complaints to heart and crafted new legislation that will "rein in" the companies. Here is one summary of the changes. The bill passed the Senate yesterday and is expected to be passed by the House easily also, in a slightly different version that will be worked out in conference.
Certainly some of the fixes provided by the new legislation were needed and long overdue, to restore some fairness and balance to the issuer-holder relationship. If someone's interest rate is going to double or triple, surely they should be notified of that fact. When somebody's card is canceled for being just a day or two late in payment, isn't that a little extreme? No one can look at these practices without sympathy for those affected by them, considering how central credit cards are to Americans' lives these days. So is this good legislation? Yes.
But also not so good, if you think your problems with credit card companies are over. The article I linked above starts out with the statement that the card companies don't seem to have many friends on Capitol Hill these days. Perhaps not, but this legislation is like a lot of actions Congress takes in the area of consumer rights; it fixes some superficial problems, but leaves plenty of loopholes, and possibly, unwittingly, may even open new avenues of abuse for the companies to exploit.
So don't rejoice just yet. Congress has not altered the fundamentals of the business (nor would we expect it to). Banks that issue credit cards are still in the business of providing heavily marketed short-term revolving credit at usurious interest rates. The business is so profitable that they are likely to continue to hand out credit cards like penny candy, and use all kinds of gimmicks to encourage you to use your card more and more (and more than you can afford). And they are still very much in the driver's seat when it comes to the terms of your contract with them.
Many reports indicate card-issuers are already instituting changes designed to help them "recoup" the profits they will lose from the practices the new law bans. These include higher interest rates in all categories, increasing annual fees, shortening grace periods, and more -- changes that will apply to even customers who pay regularly and on time. Ironically, these "good" customers are, from the issuing banks' viewpoint, their "bad" customers. And they may end up paying more, in effect subsidizing those who are wont to overspend or can't pay their bills on time.
It's worth noting the profits lost, if any, are those that the companies obtained through unethical, if not illegal, means, in effect by deceiving people, charging them outlandish rates, and not notifying them of changes. The same people, by the way, whom in many cases they cynically encouraged to incur more debt. Far from blithely finding new ways to gin up the same profit levels, shouldn't the issuers be returning those "lost" but unethically gained profits to their cardholders? It sounds good, but we know it's not going to happen. Not now, anyway. If you believe in individual responsibility as I do, it's up to credit card holders to manage their accounts, monitor interest rates, pay their bills on time, and limit their spending to what they can afford. After all, convenient and ubiquitous as credit cards are, it's still possible to live without them, right?
Maybe for a while yet; but I think we're on (or beyond?) the cusp of structural change in the credit card's role in our economy. CAN we really live without these cards? Try renting a car without one, or buying anything online. Think about how everything you buy is 3 to 4 % more expensive than it would be without credit, as those merchant fees have been built into the prices you'll pay - even if you pay cash! If we all switched tomorrow to using cash, there wouldn't be enough cash in circulation to handle the change. In the not-too-distant future, as the card companies continue to push us to use their cards for everything from buying a Coke to paying our mortgage, they become an integral element of our payments system. The tradeoff is that they should expect greater regulation.
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