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May 19th, 2009

Credit Card Co’s Set Sights On Responsible Customers

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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.

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6 Responses to “Credit Card Co’s Set Sights On Responsible Customers”

  1. Patty Says: May 19th, 2009 at 5:00 pm

    I am a credit card holder and pay it off every month. It’s been a convenience for me to use a credit card rather than carry cash. Oh sure, when I was younger (am now in my 40s) I carried “debt” on my card, but I am older and wiser (thankfully) and cannot stand to be in debt (except for my home), so I only purchase what I know I can afford to pay for in that month or whenever the payment is due.

    Those who feel they are being gouged by the credit card companies because they are swimming in debt – well, heck – how did they get in all the debt in the first place? It’s not like anyone held a gun to their head and forced them to overspend. It’s a ridiculous notion that our government bails out people who cannot take care of their own finances. These people can read and they should read the rules regarding their credit card’s agreement.

    It goes without saying that credit card companies created their own mess by practically shoving credit down people’s throats (get a credit card, 0% interest for first 12 months, etc. etc. they all touted). Those who simply do not pay attention to the fine print (i.e. details) ended up with credit card after credit card and shopped like maniacs.
    But, the credit card company – what were they thinking? It must just not have mattered to them that Joe Blow had 10 cards and here he is applying for another one – what were those companies thinking? Do they really make that much money that it didn’t matter to them that Joe would likely not be able to pay all his debt? This is where some type of regulation should be evaluated. The cc companies helped to create the mess the financial market is in.

    But, why should those of us who are good little girls and boys and manage our finances by following the rules have to pay the price! I’ll surely dump my cc if I am going to be charged for paying in full every month or if they institute a ridiculous charge for having the card. I’ll go to my credit union and get their card!

  2. VICTORY! Senate OKs bill to rein in credit card industry | MyBankruptLife.com Says: May 20th, 2009 at 3:18 am

    [...] Credit Card Co’s Set Sights On Responsible Customers (hsh.com) [...]

  3. Tim Manni Says: May 20th, 2009 at 9:22 am

    Patty,

    I’m with you. Your sentiment (and mine) is surely being echoed by every other responsible card holder in this country — I’m just not sure if many of them know it yet. Granted, I do believe some credit card rules are unfair and deceptive, but the thought of having to pay for someone else’s mistake really burns me up.

    I’m curious to the financial repercussions if a majority of responsible card holders cancel their cards. If that happens, the strategy of going after responsible cardholders could backfire completely.

    Great to hear from you Patty, thanks for commenting, hope to hear from you again soon,
    Tim

  4. Susy Says: May 20th, 2009 at 9:34 am

    I am appalled at the lack of respect that is being shown to responsible credit card holders. I pay my bills in full each month, just like every other credit card holder SHOULD do, yet I am being penalized for irresponsible American’s mistakes. I believe the credit card companies have reached a new low, and it is disturbing to me that responsible citizens should now have to pick up after their mistakes.

    This new proposal is having me seriously consider dropping all my credit cards and strictly buying on a debit card/cash basis. I will not pay money out of my pocket to fix greedy people’s mistakes.

  5. Tim Manni Says: May 20th, 2009 at 9:40 am

    Susy,

    This seems to be the consensus. I told Patty the same: this could backfire in their faces. What’s incentives are there for Americans to be responsible? The gov has shown serious favor to rescuing those who are responsible homeowners, and now credit card holders. What’s next?

    Thanks for commenting, hope to hear from you again soon,
    Tim

  6. Obama’s Credit Card Bill—Will it Help? Not!! | Obama Exposure Says: May 23rd, 2009 at 12:22 pm

    [...] Credit Card Co’s Set Sights On Responsible Customers (hsh.com) [...]

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