Does the Credit Card Bill Change the Game for Consumers?
The bankers are still upset over the bill, but the 90-5 vote on the final version indicates that they decided not to put up a backs-to-the-wall fight. Given public animosity toward credit card issuers (or, more specifically, to the credit card divisions of the same banks they trust with their deposits), and the vocal intervention of a popular President Obama, I think the banks decided this was not a battle worth fighting. They would rather save their fire for a bigger issue that is less black-and-white for the public - say, whether Treasury should be able to take over bank holding companies, or whether there should be a central systemic risk regulator.
Ezra Klein points out that the bill may make credit cards more expensive for people who pay off their balances in full every month.
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.
I'm with Klein in spirit. I pay off my balance in full every month, and as a result I make a lot of money off of my main credit card issuer (American Express) - I think I net something like 1.5% in cash back on all of my purchases. When I was in the business world and flying a lot, and charging all of my travel expenses on that one card, that came to over $1,000 per year. The trap, of course, is that if you miss a payment, you can forfeit your accumulated rebate (it only pays out once per year) and pay lots of fees. Clearly AmEx is paying me my rebate by gouging other customers with fees. If I lose my rebate because their ability to gouge other people is reduced, that's a good outcome in my opinion.
Unfortunately, I'm somewhat skeptical about the claim that credit card issuers will be unable to make money off of balance-carrying customers and will have to increase costs for zero-balance customers like me. I don't have any specific evidence here, but I know that this is a very sophisticated industry with many smart people who have sophisticated techniques for analyzing data sets with millions and millions of rows. If there is a way to make more money from customers, they will find it.
May 19, 2009; 4:34 PM ET
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