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The Credit Card Bill Could Be Bad for Those With Good Credit -- And That's Okay

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The Senate is voting today on a bill reforming some of the credit card industry's ugliest practices. The biggest change would block interest rate increases until a borrower's payments were 60 days past due. And then, if the customer paid promptly for the next six months, the original rate would restore itself. That strikes me as, at best, a suboptimal state of affairs (why should the rate increase at all?). The fact that it's being considered a major improvement neatly suggests that the current state of affairs borders on comically dystopic. Which is probably why Stephen Colbert's commentary, embedded above, is about as trenchant as anything that's appeared on an op-ed page.

Other common sense changes from our deregulated state of nature include 45 day notice of rate increases, disclosure if the terms of the card have changed when a customer tries to renew her card, and a full listing of due dates and applicable penalties. How very kind.

The credit card companies are protesting that if they can't make as much money tricking people into deep credit card debt, then they'll have to make the money up among better customers. Which might be true. Nancy Trejos has a nice take on this:

I've talked to several industry experts who predict that these new regulations are going to transform the way the industry conducts business. Credit card executives have warned that they will lose more money if these rules go into effect. They say that would force them to increase interest rates or withhold credit. Proponents of credit card reform say that is just a scare tactic. But many experts do believe that credit card companies will end up scaling back rewards progams and charging annual fees. Before deregulation of the credit card industry back in the 1980s, card companies charged everyone 18 percent interest and annual fees. We could end up going back to that type of model. Already, we've seen many card companies cancel rewards programs.

The credit card industry, in recent years, has developed something of a tiered model. Good customers are treated extremely well. There are rewards programs, favorable terms, and high limits. But those who don't prove as assiduous about their bills, or slip up amidst their payments, fall into a second tier that's as punishing and deceptive as the first tier is serene and straightforward. Hidden fees, unexpected rate increases, universal default, and all the rest. The result is that low income credit card holders effectively subsidize high income credit card holders. The financially illiterate are gamed so the financially literate can pay very low fees. Flattening that business model out a bit would make a lot of sense. It's a feature of the new legislation, not a bug.

By Ezra Klein  |  May 19, 2009; 12:44 PM ET
Categories:  Economic Policy  
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Comments

Do you think it's just a coincidence that the banks are threatening to charge 'deadbeats' fees and interest just when the Senate is about to vote on the bill? Me neither.

Posted by: mfein2 | May 19, 2009 12:58 PM | Report abuse

And here we disagree.

First, I have no problem with the current slate of new proposed regulations for the credit card industry, but your thesis in this post is hopelessly wrong.

You say, "Low income credit card holders effectively subsidize high income credit card holders."

That's crap. This situation has NOTHING to do with 'low income' VS 'high income' credit card holders. Rather, it has to do with 'Responsible credit card users' VS 'Irresponsible credit card users.'

I personally know tons of relatively low income folks who are nonetheless *extremely* responsible and have excellent credit histories. And I have no doubt that there are tons of high income folks who are completely *irresponsible* and have terrible marks on their credit report.

So please drop the 'low income' VS 'high income' premise. It is unworthy.

Posted by: MyrtleParker | May 19, 2009 1:03 PM | Report abuse

Once upon a time there were no credit cards. People saved, borrowed from family/friends for really urgent purchases, or put things on 'lay-away'. Their interest charges didn't compete with rent, food and transportation, because they had no interest charges. Delayed gratification was the rule, and often the 'urgent' need to 'own' something turned out to be just a hormonal surge that disappeared with reflection time while savings accumulated.

And once upon a time, society ruled through law that interest beyond some percentage level was 'usurious' and illegal. Some religions forbid lending at interest, notably significant parts of christianity and islam.

Why exactly do we need credit cards to purchase a Starbucks coffee? Why wouldn't a debit card be just as effective and more responsible for everyone (including the starving children that aren't fed because the credit card was blocked after exceeding the credit card limit to buy a six-pack of PRB cans)?

Oh, you want a vacation that you haven't saved for? And you want to 'buy' a special offer to fly to NYC from Lincoln NE that is good for 3 days only - because NYC is such fun in May - even though you don't have the June mortgage payment?

I'd support a phased in law good for five years: no additional credit card debt that isn't paid in full when the bill arrives. Then we'd see what the real consumer cost and bank profits would be in a 'state of nature'.

Posted by: JimPortlandOR | May 19, 2009 1:34 PM | Report abuse

If faced with an annual fee, wouldn't all those people who never carry any balance on their credit cards just use their debit cards instead and cancel their credit cards altogether? This, at least, is what I intend to do (unless the annual fee is truly insignificant). I know that people like me are not the greatest source of revenue for credit card companies, but we do represent a riskless stream of steady revenue (the difference between what we pay the credit card company for purchases made and what they actually pay to the vendors). I'm guessing they wouldn't really want to part with that, would they?

Posted by: alhs77st | May 19, 2009 1:39 PM | Report abuse

yeah--this argument makes no sense, ezra... anyone who pays off their balance on time will just switch to some other payment mechanism... maybe we'll lose our rewards points, but that's about it.

Posted by: brad12345 | May 19, 2009 1:57 PM | Report abuse

It is as inevitable as the law of gravity that this bill is going to make credit more expensive. Where will the burden fall? It will have to fall on some part of the world of borrowers, but whether it falls on the rich or the poor it is a terrible bill that serves no useful purposes, rewards bad behavior, and generally will harm the economy. If you regulate something you will get less of it, and credit is no exception. There are economic laws and principles that no amount of legislating can eliminate. Foolish and harmful legislation; alas, not the last we will see until the Republicans are back in power.

Posted by: DorothyfromColumbus | May 19, 2009 2:05 PM | Report abuse

"Foolish and harmful legislation; alas, not the last we will see until the Republicans are back in power."

The bill passed the senate at 90 for and only 5 against. So, good luck with all that.

Posted by: MyrtleParker | May 19, 2009 2:17 PM | Report abuse

I agree with some earlier comments. If they charge me an annual fee, they lose my business. The reward points are stupid anyway. You buy $11,000 worth of stuff to get a $150 piece of merchandise. Just save and buy it. Another comment I agree with is that it's not about high or low income. Here's the deal--banks will take advantage of the financially illiterate as they always have done. What else is new?

Posted by: mmurray1 | May 19, 2009 2:26 PM | Report abuse

I have good credit and there is nothing about this bill that bothers me. Someone invested with these folks who have never had to work for a living is just trying to make me think so. If these credit card companies that do nothing about fraud and extend credit to college students who don't even have a job think they are now going to make up for their lost opportunity to gouge those folks on my business, they can think again. They need me more than I need them.

Posted by: SarahBB | May 19, 2009 2:28 PM | Report abuse

Why is Obama and company trying to fix things that are NOT broken? Stop the insanity!

Posted by: haysgirl66 | May 19, 2009 2:31 PM | Report abuse

I have MC/Visa cards from Sears, Amazon, Macys, etc. They may consider annual fees or no grace period at their own peril. I use CC for my convenience, if they decide to implement these charges(I pay in full monthly)I will use alternate methods to purchase. Perhaps from their competitors.
How strange, I always thought that a deadbeat was someone who didn't pay their bills.

Posted by: jimbo1949 | May 19, 2009 2:32 PM | Report abuse

What's funny about this debate is the refusal of both sides to admit that too many people received credit cards who shouldn't have received them. That has to end. If this bill is a step in that direction, bring it on.

Posted by: AConcernedCitizen1 | May 19, 2009 2:32 PM | Report abuse

You can ease up punitive charges on people being late - just make them give up their purchases as well - their X-Box, Ipods and designer clothes.

They bought things with money they didn't have, and now they can't make the payments, and you feel badly for them?

Make them give the stuff back. Why should they keep everything and then be rewarded by a system that's afraid to punish bad behavior?

Democratic mantra: "It's not YOUR fault irresponsible borrower."

Posted by: dnara | May 19, 2009 2:33 PM | Report abuse

I do use credit cards for the convenience and I do participate in some rewards programs, but like some other posters, I am perfectly capable of paying my bills with cash, checks and debit cards, so if any company thinks they are going to make big bucks by jacking up fees or charging interest during the grace period, they are seriously mistaken. People with the means and the discipline to pay their bills on time and maximize their rewards are also smart enough to stop using credit when it no longer makes financial sense.

Posted by: maryannevans2 | May 19, 2009 2:35 PM | Report abuse


Call me a geezer, but who needs credit cards (in their current form) anyway?

Ask around. I bet most folks will tell you they'd love not to have all that card debt.

Check this out: we've been married --and SEARS card holders-- for 20 years. Then BAM! our invoice comes in and our interest rate went into double digits. So my wife calls SEARS and asks why the increase? We've always paid our bill like a "good customer" and we were told it was to make up for the bad ones. So she asks "what can we do to get this rate back to 7%?" SEARS told her just pay the debt off and then SEARS will close our account.

I call that a win-win. To heck with SEARS.

Posted by: tony_in_Durham_NC | May 19, 2009 2:35 PM | Report abuse

"They bought things with money they didn't have" .. that's called CREDIT.


"rewarded by a system that's afraid to punish bad behavior?" ... and that's called INTEREST.

Posted by: MyrtleParker | May 19, 2009 2:36 PM | Report abuse

You know, the thesis here really doesn't make a lot of sense. Do you really think that low-income holders are subsidizing high-income holders? What incentive do you think the credit card companies had to maintain that system?

In fact, the borderline card-holders, those with late payments and such, were subsidizing those that defaulted on the debt. There's competition for the high-income responsible cardholders, so it's hard for a company to charge them very much. But somebody has to pay for it, so it a) fell on those least likely to research and understand different contracts, and b) focused on something that most people thought wouldn't happen to them (i.e., falling behind on payments).

This is pretty natural stuff, and trying to frame it as one group "subsidizing" another is just bizarre.

The most likely effect of this legislation is a tightening of requirements for the high-end cards. What will happen is that it will be tougher and tougher for the average middle-class person to reach the no-fee and rewards plateau.

Now, I think that effect is fine because the old system with adjustable rates and hidden fees really was unfair. But really, we can support this stuff without assuming weird anti-market philosophies on the part of Big Business: card companies are trying to maximize their profit, that's all.

Posted by: woofer123 | May 19, 2009 2:36 PM | Report abuse

"You can ease up punitive charges on people being late - just make them give up their purchases as well - their X-Box, Ipods and designer clothes.

They bought things with money they didn't have, and now they can't make the payments, and you feel badly for them?

Make them give the stuff back. Why should they keep everything and then be rewarded by a system that's afraid to punish bad behavior?

Democratic mantra: "It's not YOUR fault irresponsible borrower.""

Not all people who use credit cards are buying extraneous items; many are using them to pay for staples. It's not nearly as easy as you've made it out to be.

Posted by: elsid | May 19, 2009 2:57 PM | Report abuse

The credit card companies have always obtained 2-5% fees from the merchants. It is straightforward to make very good (but not exorbitant) profits from those fees. This is particularly true of those individuals with good credit ratings that pay off their balances each month. If the credit card companies had been much more judicious with the individuals they allowed to have credit cards and run up large balances, then some (or most) of the difficulties would be mitigated.
The credit card companies are used to arbitrarily raising interest rates and penalty fees to assure that their profits are sufficiently high. With the caps on interest-rate increases and penalty fees, the credit card companies will likely increase fees to other 'captive' classes of customers rather than improve there overall business practices.
In fairness to the credit card companies, it is difficult for them to determine when individuals will have excessively high medical bills or lose their jobs (the two leading causes of credit card defaults).
For most of us who are unwilling to tolerate the credit card companies significantly raising our costs, it is straightforward to go back to paying with check or cash or to pay with debit cards.

Posted by: jmjm1 | May 19, 2009 2:57 PM | Report abuse

You know, I hear the CC Companies squealing, yet they have never done me any favours even though I have extremely good credit. In fact, I have watched them jack up my interest rates, with record low prime, even though I have an extremely high credit score and have never missed payments. They have done so cover their screw ups and bad loans to poor creditors.

In the real world, that sounds an awful lot like the 'socialism' they love to harp on. It certainly doesn;t sound like they are rewarding me at all.

They also tried to jerk around the times I was required to pay without telling me, in all sorts of ways to get me to miss a payment. One card I dumped, but its getting so that I doubt I will use any for much longer.

Its time they started having to actually practice a responsible business model, or we should should just nationalize it, and get rid of them altogether. CAll a Spade a Sapde.

Conservative Right Wing Mantra -

Socialism for private profit = good. Socialism for public good = bad.
Risk is all that should ever be socialized.

Posted by: TortFeaser | May 19, 2009 3:01 PM | Report abuse

Okay, keep dragging down the productive and responsible members of society. Eventually you will look around and there will be no-one left to sponge off of. What will you do then? Or is that your idea of utopia?

Posted by: EnjoyEverySandwich | May 19, 2009 3:09 PM | Report abuse

I too must take exception to your "Low income credit card holders effectively subsidize high income credit card holders."

I've had credit cards since I was making $20,000. They were paid on time, helped develop my credit score to purchase my first house when I was 25.

It is the people who do not use their credit cards correctly ... income has nothing to do with it.

Even though, my credit cards are paid completely every month, I figure the credit companies make enough money from me by charging the vendors every time I use my card.

But I will stop using my credit cards if it no longer has any benefit for me.

Posted by: playfair109 | May 19, 2009 3:14 PM | Report abuse

It seems that credit card companies are complaining and whining about not being able to take advantage of Good Customers for being responsible, during this Economic Crisis.

Therefore, they want to also hold Good Customers hostage for the mistakes made by Bad Customers, as well as themselves.

It also find it very odd that credit card companies believe that having high credit card limit is a perk. What are the credit card companies definition of a high credit limit? Because I find a $20,000 credit card limit to be ludicrous even for me. And, each and every time that they opt to raise the limit almost every 6 months, I have to call them and request that it be lowered by thousands of dollars, so that I can continue to be Good Responsible Customer.

Posted by: lcarter0311 | May 19, 2009 3:19 PM | Report abuse

I charge bewteen $3-5,000 a month on my credit card, paying the balance in full every month. My FICO score is 835. If the credit card companies resort to they behaviors predicted in this article, I will cancel the cards and use debit cards for everything. They need me more than I need them.

Posted by: dem4life1 | May 19, 2009 3:20 PM | Report abuse

Woofer and jmjm have it. Why would credit card companies redistribute the profit they are getting from the financial illiterate to "high income credit holders"? There are two forms of subsidization that were going on though.

To rate chasers. Offers of very low temporary rates that are then reset higher were common to lock the lazy or those with deteriorating credit into high effective rates until they pay down the massive low rate balance they started with. The active, good risk rate chasers can earn a much lower effective APR by just taking a new offer when the rate resets.

To questionable credit risks. The "best" customers are the ones that carry a balance and pay the minimum amount each month, not transactors that never carry a balance and just use the card for rewards. The problem is that these heavy revolvers look a lot like the worst customers that default on their balance. The changes have limited the profitability of this segment and give them fewer tools to more accurately price the risk as it is made known so companies will likely extend line more cautiously to this questionable segment.

Posted by: nonsense1 | May 19, 2009 3:22 PM | Report abuse

Well lets see all the responsible folks who didn't buy to much house or understood what fixed rates vs variable are get to bail out folks who didn't so why shouldn't are rates go up on our CC and be charged fees? I'm just loving this socialism.Remember what airline flights used to cost before deregulation? That was when the goverment regulated the price. We're back to those day again.Inflation will be coming soon.

Posted by: FLvet | May 19, 2009 3:25 PM | Report abuse

Dorothy from Columbus: Actually, what you say *would* be true in a free and competitive market. But when an industry's profits are economic rents resulting from restricted competition, it may well be possible for the "burden" to fall on the inflated profit rate. As Henry George observed of land rents, a tax on economic rent does not affect the supply of a good, because by definition economic rent is a price over and above what is required as a free market incentive to bring the good to market.

Posted by: freemarketanticapitalist | May 19, 2009 3:30 PM | Report abuse

Reminder that the credit card companies also hit the merchants pretty hard (something like 7% of every credit charge goes to the banks for handling, with a minimum fee of a few bucks ... which is why merchants post signs about minimum charge levels of $10 even though their card agreement prohibits it).

So won't merchants get hit too -- just talking about consumers suggests some element of scare tactics.

Posted by: WilsonHSgrad | May 19, 2009 3:32 PM | Report abuse

These credit card companies are monsters in business suits. When I was a freshman in college, they sent me a credit card, 2000$ limit. Let's see, no job, 18yrs old, of course I'm going to keep it, without thinking about payments. When i maxed it out, they proceeded to send me another card with a $1400 limit. By the time I was a junior, I was like over $3000 in debt. The purpose of this law is to one protect those who don't know what all that fine print is. And 2, keep them from jacking up all kinds of fees and interest and financing charges b/c you're freaking 2 days late. There's no real profit made of those who pay their bills in full every month and none in those who default. The money comes from those struggling just enough to make payments but not in a timely manner. Credit cards are for those with extra income to make payments every month. Not those who are hardly making it so they get a card just to keep the lights on and food on the table. Those are the ones who are getting ripped a new one by these Credit Card companies.

Posted by: aheflin30 | May 19, 2009 3:53 PM | Report abuse

P.S. Praise be that the Democrats are in control. 4 more years of the Republican way and my family and I would have been on the streets.

Posted by: aheflin30 | May 19, 2009 3:56 PM | Report abuse

this guy klein seems surprised that the illiterate would get "gamed".

i knew there was a reason literacy was all the rage.

Posted by: dummypants | May 19, 2009 4:06 PM | Report abuse

"Before deregulation of the credit card industry back in the 1980s, card companies charged everyone 18 percent interest and annual fees. We could end up going back to that type of model."

Go right ahead. I'll cancel my cards and start using cash. The credit card companies aren't content with the transaction fees they get, which have in turn raised prices for everyone.

What's a better deal for me: 5% cashback "rewards" or spending less and saving more?

Posted by: dlkimura | May 19, 2009 4:20 PM | Report abuse

Totally agree. I pay every month in full and use the credit card solely as a convenience. I'd be happy to going back to a small annual fee to have a credit card. That's an open fee for the service I use. A lot like having a phone bill, an electrical bill, etc.

This would also discourage people from collecting multiple credit cards, which always seems to lead to no good. Things you can do with multiple credit cards include; losing track of some of them, which could facilitate identity theft; accumulating way more debt than any one card would permit; transferring balances around and thinking that means you are "managing" your debt; etc. Better to have one card, or at most, two. And pay to have them.

Posted by: fairfaxvoter | May 19, 2009 4:30 PM | Report abuse

@FLvet: "Well lets see all the responsible folks who didn't buy to much house or understood what fixed rates vs variable are get to bail out folks who didn't.."

In the 80's you neocons had the "Welfare Queen". Now it's the irresponsible borrower. What about the woman who had an affordable mortgage until her husband died in a wreck? Or the couple who never carried a credit card balance until they were hit with $20k in medical bills AFTER insurance? Or any of the millions of other complications that life throws at people?

The problem is you people always look for the situations that make YOU look like a pillar of virtue and responsibility so you can feel righteous about condemning those who are less fortunate than you. Did some people act irresponsibly? Of course. Explain how that justifies throwing out the baby with the bathwater.

Posted by: BigTunaTim | May 19, 2009 4:37 PM | Report abuse

It's only natural that the credit card bill gets passed (obviously, it's not quite done yet). After all, which representative is going to say no? His/her opponent will have a field day in the next election when the time comes.

Now, it's only natural that banks are taking issues with this. There is no reason for them to go quietly. People use their credit cards and it will be difficult for anyone to abandon their cards just because they take a different stance.

I actually love using credit cards to accrue cash back and it's easier to track expenses. Something that cannot be easily done or as well done with a debit card or cash. I simply pay it off every month.

I also pay off the entire balance every month to avoid any fees whatsoever and absolutely refuse to carry any balance. There is just no point in doing so. If I cannot pay it off in full, then I wouldn't spend the money at first place.

Online websites for research and finding good deals is another way I stretch my dollars farther. For example, I recently came across an interesting table that details the discounts on Amazon at:
http://www.uberi.com

I just go there and skim through stuff a couple of times a day. I imagine other people will find it useful too.

Posted by: john3k | May 19, 2009 4:39 PM | Report abuse

Again, those who pay on time get screwed and those with no responsibility get rewarded.

Posted by: kathymac1 | May 19, 2009 4:42 PM | Report abuse

I'll cut up my cards before I pay interest without a grace period.

Posted by: NoVAHockey | May 19, 2009 5:10 PM | Report abuse

This is a BS article.

Rates for the responsible are lower because of lower risk, and perversely, higher "throughput" which earns fees for the CC co's.

They will never charge annual fees on basic cards, at least for the best customers for simple competitive reasons. I easily send $20 - $30K of personal charges through my card and that earns them at least $300. Add my company spending via my card and it's triple that. What company wouldn't want that business? They will compete for it by not charging.

Those who pay on time do not get screwed cathymac1 BECAUSE we pay NO INTEREST at all, no fees, no penalties. It's interest free loans, that's all.

Don't buy the scare tactics.

Posted by: AlanBrowne | May 19, 2009 5:20 PM | Report abuse

The only reason I ever got a credit card in the first place was when AT&T introduced the "Guaranteed no annual fee ever" card. I pay my bill in full every month, but I wouldn't dream of owning a credit card if they tried to slip in an annual fee. I'll just use cash for all store purchases, paypal (drawing from my checking account) for online purchases, and checks or automatic payments for things like utilities or the mortgage.

Every time I use my card now, Mastercard is making anywhere between 1.5% and 5% from the merchants for a few seconds work, and the merchants benefit enormously in return, since few people carry much cash or a checkbook. Stop issuing cards so indiscriminately to people who don't know how to budget their expenditures and you wouldn't have this problem. But I lived without credit cards for over 30 years, and I can easily do so again. I have no interest in subsidizing credit card companies who don't know how to control their runaway marketers.

Posted by: andym108 | May 19, 2009 5:30 PM | Report abuse

Like most people I would like the marketplace to be the prime determination of all things credit, competition and all that. The credit companies became exceedingly greedy though, with usury and cascading rate hikes, and then insurance companies feeding off the carcass of people struggling to survive loss of jobs by jacking up insurance rates as well. So all in all I applaud the Congress for the effort, even though they could have started with smaller changes and see if the credit card companies got the message. We'll see how it all shakes out of course, but the impact will be less felt by those with excellent credit - they can shop around for a better deal. Greed is a basic human trait that can be tough to control, thank God there is a government to do that when the companies get carried away.

Posted by: bfjam | May 19, 2009 5:35 PM | Report abuse

"They bought things with money they didn't have" .. that's called CREDIT.


"rewarded by a system that's afraid to punish bad behavior?" ... and that's called INTEREST.

Posted by: MyrtleParker

---
Wrong. Buying things with credit, with the intention of never paying the money back, is what millions of Americans are doing. Credit is the borrowing of money with the expectation that you must pay it back, plus interest, in the time afforded.

Interest is the payment to the lender for the extension of credit. It is not punitive. It's the price you pay for borrowing money to buy something now, and pay back later. It also is payment for the bank taking on risk of your default.

If you don't understand what's going on, you can't fix the problem.

Posted by: dnara | May 19, 2009 5:39 PM | Report abuse

Banks make at least 2% of of every transaction. I pay my balance off every month, but I charge at least $30,000 a year. That means the bank is making at least $600 a year off of just me just off transaction fees. Multiply that by just a million cardholders, and the bank is raking in $600 million just on transaction fees for just a million cardholders. Now how is it that the banks aren't making enough money and need to charge usurious interest rates and extortive fees?

Posted by: gt92102 | May 19, 2009 6:04 PM | Report abuse

Exactly, dnara. Doing what our young pup columnist here is so enthusiastic about just masks the problem. If he would have thought this through he would have realized that putting costs incurred by those with bad credit onto those with good credit only works if everything stays the same. But those with the good credit (notice I'm not correlating credit to income like our young pup friend) have options and choices, and they will exercise them, running away from the credit firms and therefore leaving less money to subsidize those with the bad credit.

This will result in even less money available to subsidize those with the bad credit (since this solution does not address the issue of why those with the bad credit have gotten in trouble), so the credit firms will either squeeze those with the good credit harder or, more likely, turn to the govt for help. So we taxpayers will have to come to the rescue yet again.

Posted by: Engineer3 | May 19, 2009 6:14 PM | Report abuse

I have a good credit but it makes no difference when it comes to the fees and higher interest rates except I am not charged a late fee. They are still overcharging me. Luckily I only have one card for travel purposes but I can't imagine having more. Its like dealing with loan sharks.

I want to know if its true that anyone who defaults on their credit card that the credit card company has insurance that covers defaults. Someone I know who works for a credit company says they are insured to cover defaulters.

Posted by: mac7 | May 19, 2009 6:31 PM | Report abuse

What a great idea. Punish honest people and reward those who abuse their credit cards. Thank you Mr Obama.

Posted by: alstl | May 19, 2009 6:52 PM | Report abuse

This article sounds pretty goofy to me. I only have one credit card, I always pay it off every month, so the interest rates don't bother me. ALSO, I have found that I can just use my debit card for most purchases.

So if my credit card decides to charge an annual fee, I will most likely just cancel it and use my debit card.

Posted by: dotellen | May 19, 2009 6:58 PM | Report abuse

It's interesting that the kind of cross-subsidization that the credit card companies claim is happening would be impossible in a competitive market. Hopefully some Senator will call them on that in a hearing.

The harsh treatments for the most risky customers may very well be key to the business model for the riskiest debt. And taking those treatments away may make it unprofitable to offer credit to the worst risks. It's arguable whether that is a bug or a feature of the legislation.

What the credit card companies are trying to do with this kind of story is to scare up opposition to reform from customers who pay their full balance regularly.

Posted by: danryan1 | May 19, 2009 7:06 PM | Report abuse

I don't see a problem if it is more difficult to get credit. People will have to start saving money before they bought things.
"Oh, the horror, we will have to have patience! It cannot be..."

Posted by: KnightAngel | May 19, 2009 7:14 PM | Report abuse

Dear author, you are completely wrong. And my example proves it. I have been artificially unemployed for last six years. I have been artificially unemploed before also, but it was not so bad because my husband was pretty well paid at the time. But within last six years he has had full time employment with minimal wages. It is against his qualification, against the obvious demand for his skills, and against the very basic common sense, as well. I am not employed at all, though I am permanently certified in Illinois, and highly qualified secondary school teacher of mathematics and computer science. I am the skillful teacher, especially of the former subject, with the best recomendations and track records of pertinent achievements. Though under the program 'No Child Left Behind' my skills were and are still in great demand, I was labeled 'overqualified' and offered to work ...only as volunteer, which I, of course, declined. So, as one can easily agree, to live together on one minimal wage salary is no fun. We-both often starve, but my credit history is perfect, and my credit limits on all of my credit cards have been increased immensely within these last six years. Once again, the responsible or irresponsible nature doesn't depend on income, it is the quality of one's personality. And I, surely, do not want to be punished for anyone else's sins, do you want to?

Posted by: aepelbaum | May 19, 2009 7:36 PM | Report abuse

Banks and businesses have been operating in a free-wheeling credit card bonanza that allowed usurious interest rates and contracts that allowed unilateral changes to agreement terms without notice. By issuing as many credit cards as possible in this environment, without regard to individual financial responsibility or ability to pay, they created a 'credit card bubble', similar to the 'real estate bubble'. They made it larger by raising card holder interest rates for responsible users claiming it was necessary to cover losses, while at the same time continuing to issue cards to those without the ability or desire to pay. Now, their 'credit card bubble' has burst and they will have to earn legitimate profits from providing real financial services, instead of churning profits from the entire group of credit card users who carry balances. As others have said, those who don't carry balances will find other means to pay for casual purchases -- maybe even cash!

Posted by: Delva | May 19, 2009 7:49 PM | Report abuse

back in the 80's everybody paid 18%?? Not on your life. interest rates might have peaked there, but I had a hefty balance and never have I paid more than 11. And I think that is usury. Your article makes me sit back and wonder where you get your information from. Your perspective and that of your sources is really weird

Posted by: johnk8601 | May 19, 2009 7:52 PM | Report abuse

We should be so lucky as to have credit card companies go belly-up, letting America again become where almost everyone with a job would, in an emergency, qualify for a bank loan at decent rates for not having excessive debt and bad credit ratings.

Posted by: jhbyer | May 19, 2009 8:07 PM | Report abuse

Actually the control of credit is in the Card issuers hands. If one fails to pay on time all they have to do is flag the card and deny transactions. But they don't do this do they?

Amex provided me with a Blue card which was used for a production. I never missed a payment, I payed on time and usually with $500 on the principle. I was charged 10.6%. During the height of the production the card limit was exceeded by 3%. Amex changed the interest rate from 10.6% to 27.24%, a 38.9% increase. They could have flagged the card and deny charges above the limit. Why don't they? Because these are traps and they know that what the consumer is not aware of is big profit to the credit card holder.

No I don't have sympathy for them. I'd be glad to pay an annual fee vs 29% interest rates.

Another trap is they also continue to send me are checks that I immediately shred.

Also Because I missed a payment on Discover once by 2 days, they cranked up the interest to 28% from 12%, so I paid it off the next month and put the card away. What did Discover do after over a year with nothing being charged on the card? They sent me another card! They then offered me a teaser of 1.5% for six months! So I used the card for a $900 car repair and paid it off in 4 months! They did offer to lower my rate to 19% and I responded that this will only mean the card goes back into storage.

Posted by: captain3292 | May 19, 2009 8:18 PM | Report abuse

One thing I haven't seen mentioned, oddly enough, is the come-ons you get in the mail that offer people with good credit ratings 0% interest on purchases and outstanding balances for up to a year or more, obviously in the hope that you'll keep the card after the 0% rate expires and start paying hefty interest charges. But in the meantime, all you have to pay is the monthly minimum, usually only 1% or 2% of the balance. The remaining balance amounts to an interest-free loan, and you can put the money into an interest-bearing outside account of one kind or another. In my experience, the rules are very clear and never violated. When the 0% rate expires on one card, you can transfer the balance to another card offering a 0% rate and keep playing a revolving game, with a new interest-free loan. The only profit the card companies make is from vendors, not card-holders. A very good deal if you don't let your credit card debt get out of hand, although I haven't been getting those 0% offers lately, probably because of the over-all credit crunch. I wonder if the new law will eliminate them entirely.

Posted by: coy66ote | May 19, 2009 8:34 PM | Report abuse

The fat cats who boss us around from the hill and oval office are not servants these days are they?

They should suspend the entire unfair system called credit reports and credit scores.

It is insanity as criminals run the Country, and illegals run on your names.

Delete it all, and get back to the small town bankers, and a handshake and integrity towards people.

Posted by: dottydo | May 19, 2009 8:37 PM | Report abuse

Another moronic post by the geniuses at the Washington Post. The entire reasoning given for this headline is this "The credit card companies are protesting that if they can't make as much money tricking people into deep credit card debt, then they'll have to make the money up among better customers."

Or is this just a stealth attack on Obama administration by the Washington Post that is in over drive defending its wall street constituency.

Posted by: kevin1231 | May 19, 2009 9:23 PM | Report abuse

What happens when credit card holders do not pay their payment or go bankrupted? Will the credit card company actually lose money? Or the government or the merchant picks up the tab? Does anybody know the answer? Please!

Posted by: dummy4peace | May 19, 2009 9:30 PM | Report abuse

I don't think many of you folks get what goes on by a credit card lender. As a former Senior Vice President of a major credit card issuer we always considered clients who paid their balances in full each month to be the "Deadbeats". Believe me nobody likes to lend money out freely for sometimes up to 45 days without collecting interest on those funds. Why do you think we were always right there to give you those hefty credit line increases? Did you think we did it because we were such nice guys? No, the reason was we hoped that at some point you couldn't pay the balance in full and then we gotcha!Credit card companies make Billions on people who make minimum payments each month regardless of how high the interest rate is because you're the ones that we caught in our finely woven web of deceit. From our lobbying in states to doing away with their usuary laws to our marketing campaigns urging you to buy something that was priceless, these maneuvers were all designed to do one thing and one thing only; and that was to put you into debt and keep you in debt while we got rich. A lot of folks have mentioned that it's the irresponsible people who put themselves into debt that are to blame for some of you privileged individuals who might have to pay more or lose some of your rewards programs but they're not. For the most part these people are playing by the rules unfortunately they're playing against a stacked deck. These are hard working everyday Americans who want to give their kids a better life than they had. They are people that are just sick and tired of being abused by the system, of paying late fees for being 1 day late, for paying interest rates that a loan shark would be proud of, for paying fees to make a payment on time by telephone.
To those of you who look to blame these people as being irresponsible, I say point the finger of blame at our government institutions that over the years allowed credit card companies to so easily induced people to fall into debt and only now wants to finally do something to help. I say this bill doesn't go far enough in repairing the damage of decades of fraudulent lending practices. I believe more could be and should be done. So I encourage all of you to write your congressmen and demand that further sanctions be placed on credit card companies to level the playing field for all of us.

Posted by: DemLuck | May 19, 2009 10:11 PM | Report abuse

Listen folks,

This credit card bill is make-work for Congress. They want to look busy, they want to look like they care, so they pass a bill that doesn't really address the major problem with credit cards today. All the senators and representatives want is to be re-elected. They don't care about you or me or anyone else. The only people in this country they care about stares back at them from the mirror.

While striking down the "universal default" clause is a good thing--if we had some accountability, some way to check whether the banks were, in fact, abiding by the so-called "law," which we don't and Congress knows it--this bill does nothing to address the higher than high interest rates. The bill gives the banks NINE MONTHS to jack those interest rates to what the banks would deem an acceptable level (of greed).

The banks are borrowing the money at nearly zero percent, yet they are charging the average credit card consumer double digit interest, not to mention collecting their percentages from the merchants.

So, what does the bill do for us really? Nothing. It's a vehicle to give every Congressman and woman some accomplishment to point to come election time. They certainly can't point to the numerous bailouts or backing Obama's plan to tax and tax everything we consume as a feather in their caps now, can they?

Time to quit falling for this crap and fire all of our so-called elected "employees" who've obviously forgotten that who they were hired to serve does not smile back at them from their mirrors.

Posted by: novelator | May 20, 2009 8:23 AM | Report abuse

Klein, your sophomoric analysis is painfully primitive.

Posted by: huny | May 20, 2009 10:05 AM | Report abuse

Klein, your sophomoric analysis is painfully primitive.

Posted by: huny | May 20, 2009 10:09 AM | Report abuse

the entire culture has changed completely in thirty years.

the whole world that i grew up in, managed to live without credit cards.
people actually paid with money for the things they purchased.
by doing that, family members had a very clear sense of how much money there was to spend.
it was harder to live in a fantasy world.
if your parents couldnt afford a car, you simply didnt have one.
if you couldnt afford a tv, but just a radio, you listened to the summer baseball games on the radio.
you could "do without."
and when you could finally afford the tv or the washing machine or the mint green desoto, it was celebrated and appreciated.
there is a dignity and inner discipline in "doing without" and then, appreciating something when you have finally earned it.
i grew up with a mother who said, "no matter how small your pay check is, the first thing you do, is save some part of it, even if only pennies, before you pay the bills.
through even the leanest of times, i watched her do this.
it is not a lesson that is widely taught today.
this new culture began with the advent of black and white television. suddenly, there were commercials for things that we never knew we needed so badly, that were so much sleeker and fancier than the things we already had and we became slowly convinced that we couldnt live a happy life without them.
and then the credit card appeared...
and the rest is history.



Posted by: jkaren | May 20, 2009 10:45 AM | Report abuse

Is it not true that credit card companies make money from vendors? How big is the percentage of income from this end?

Posted by: a2mi | May 20, 2009 12:16 PM | Report abuse

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