Credit Card Co’s Set Sights On Responsible Customers
by Tim Manni
Since both lawmakers and the Federal Reserve have drafted new rules to curb “unfair” practices that some feel exploit struggling credit card holders, banks are beginning to shift their focus to responsible borrowers in order to make up for the billions they are expected to lose once the new rules take effect:
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.” [emphasis added]
Banks and credit card companies make billions every year from charging late fees and penalizing customers who exceed their credit limit. Credit card expert Robert Hammer estimates that these types of penalties “should top $20 billion this year.”
If enacted, Congress’s restrictions combined with the Fed’s new rules will be a one-two punch to credit card profits. The New York Times estimates the Fed’s rules will cost credit card companies $12 billion this year alone. The Treasury’s stress tests calculated that 19 of the country’s largest banks will suffer $82 billion in credit card losses in just two years.
The Obama Administration’s credit card reform is striking the same chords of disgust among responsible card holders as his housing rescue plan did with responsible homeowners.
With many consumers mired in debt and angry at what they consider gouging by credit card companies, the issue of credit card reform has broad populist appeal. Members of Congress and the Obama administration have seized on the discontent to push reforms that the industry succeeded in tamping down when the economy was flying high.
As a responsible card holder who carefully monitors their monthly purchases and who is diligent in paying their balance in full and on time every month, it’s safe to say I’m a little fired up at the thought of my “free ride” being over. To what extent will I be subsidizing “those that have credit problems”?
It seems the initial reaction would be, “well I just won’t use plastic anymore.” Yet, being a responsible card holder is essential to a good credit score. These credit card reforms may have done more harm than good.
