Congress has passed the new credit card law that imposes restrictions on rate increases the banks can charge customers. The president will sign it Friday.
Marketplace reports, however, that if you've got good credit, and don't carry a balance, you might get dinged in the deal. We might return to the old days of annual credit card fees of, say, $30 or so. Rewards programs might also disappear.
Perhaps, then, some good might come from the legislation if it convinces people to wean themselves off revolving credit. But somebody must be using those checks the credit cards company send; the ones that come with a big fee for using them, usually to pay off other credit card bills. But the bill isn't aimed at consumer habits; it's aimed at the financial institutions who've done pretty well with an assortment of fees and gimmicks.
The industry argues that the good customer will end up subsidizing the deadbeat. "This industry will start looking more like a one-size-fits-all pricing approach which dominated in the '80s -- 18 percent interest and a $20 annual fees," David Robertson, publisher of the Nilson Report, told the Washington Post.
But Washington Post blogger Ezra Klein says it's wrong to separate credit card customers into good and bad. Some have lost their jobs or lost their bills, he says. The bill "forces the credit card companies to return to treating you like a responsible card holder if you return to acting like a responsible card holder," he says.
Perhaps the best consumer protection for credit card customers is a pair of scissors.
The issue is of great concern in South Dakota, which became the credit card company capital of the world because of favorable banking legislation that made the state an attractive place for financial firms to call home. The governor says up to 5,000 jobs are in jeopardy because of the legislation and South Dakota accounted for 2 of the five votes against the bill in the Senate.
South Dakota is the banking capitol of the world because it doesn't have anti-usury laws. I'd be interested to see what the net gain/loss is for the average Joe when those wages and the costs of fees and arbitrary interest rates are computed together.
It is perfectly legitimate for financial institutions to identify borrowers on a spectrum of "good" (low risk) or "bad" (high risk). In fact, it would be irresponsible to loan money out without considering the likelihood of default. Someone who has lost their job has less ability to pay back borrowed money. This does not make them bad, but it does make their credit bad.
That being said, it is unethical for lending institutions to offer low rates and the appearance of inexpensive borrowing only to raise rates once significant debt has been incurred. It is also unethical to borrow and spend money irresponsibly and then declare personal bankruptcy in an attempt to avoid paying back debt.
By the way, a recently released Federal Reserve report shows that revolving debt has declined at an annual rate of over 6% in the past 6 months (Fed Reserve). Is this lenders not lending or borrowers not borrowing? Is it necessary to legislate with this trend?