Reply #35: Back story from July 5th

[ozymandius]

Quelle Surprise! Credit Card Companies Opposed to Proposed Regulation

Credit card companies, once having had Washington in the palm of its hand, is now facing a backlash as "gotcha" fees combined with a lot of Americans paying credit card rates that a generation ago would have landed the lender in jail (no joke, on an NPR show that I participated in, a caller said his uncle, a former loan shark, was in wonder of the credit card industry's practices. Said uncle did 15 years of hard time for lending at 17%).

However, reading the reforms currently under consideration for the industry, the proposals do go after some of the more dubious practices but fall far short of imposing stringent controls such as usury ceilings (one could imagine old balances being grandfathered and new balances being subject to limits).

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If implemented, the new rules mean, horrors, that credit card issuers would not reap as much profit from chronically indebted card users as in the past, which might in turn lead them to be more stringent in extending credit to them. That would clearly be a terrible outcome.

Another blow for credit card companies not mentioned in the article is the probable death of frequent flier programs. Oh, they won't officially be killed, but the often-difficult-to-use miles (which can be accumulated on certain credit cards) will become well nigh impossible to use unless fuel prices drop in fairly short order. And once consumers figure that out, they will abandon cards tied to airline reward programs, most (all?) of which carry annual fees.

From the NY Times article:

...the legislation most likely to succeed in both the House and Senate sets similar rules on consumers’ behalf. Representative Carolyn B. Maloney, the Democrat of New York who wrote the House bill, and Senator Christopher J. Dodd, the Democrat of Connecticut behind the Senate measure, said they planned to bring their measures to the floor for votes before Congress adjourns in September.

The House and Senate bills as well as the Federal Reserve require that lenders apply payments to the debt with the highest interest rate. All would ban “double cycle” billing, in which interest is charged on some already repaid debt, and all would extend the time required, currently 14 days, between a statement mailing and payment due date.

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The credit card industry continues to stand firm against regulation, especially law made by Congress. John G. Finneran Jr., the general counsel at Capital One Financial Corporation, testified in House hearings in March that “it would be unwise — especially at this time — to enact broad legislation that sets payment formulas in statute, redefines critical product features and limits the tools of risk management for consumer credit.”

http://www.nakedcapitalism.com/2008/07/quelle-surprise-credit-card-companies.html