Credit card reform may mean responsible users will pay more .... industry calls you a "deadbeat" !

[Better Believe It]

- So cardholders who promptly pay off their credit card balances are called "deadbeats" in the industry because they don't make as much money from us in interest and fees! -


Reform may mean good card users pay more
By Andrew Martin
New York Times
May 19, 2009

Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.

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.

As they thin their ranks of risky cardholders to deal with an economic downturn, major banks including American Express, Citigroup, Bank of America and a long list of others have already begun to raise interest rates, and some have set their sights on consumers who pay their bills on time. The legislation scheduled for a Senate vote on Tuesday does not cap interest rates, so banks can continue to lift them, albeit at a slower pace and with greater disclosure.

“There will be one-size-fits-all pricing, and as a result, you’ll see the industry will be more egalitarian in terms of its revenue base,” said David Robertson, publisher of the Nilson Report, which tracks the credit card business.

People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, he said, because many have not had to pay an annual fee even as they collect points for air travel and other perks.

“Despite all the terrible things that have been said, you’re making out like a bandit,” he said. “That’s a third of credit card customers, 50 million people who have gotten a great deal.”

Robert Hammer, an industry consultant, said the legislation might have the broad effect of encouraging card issuers to become ever more reliant on fees from marginal customers as well as creditworthy cardholders — “deadbeats” in industry parlance, because they generate scant fee revenue.

“They aren’t charities. They have shareholders to report to,” he said, referring to banks and credit card companies. “Whatever is left in the model to work from, they will start to maneuver.”

Please read the complete article at:

http://www.msnbc.msn.com/id/30829066/

[Raven]

1. Back to cash, checks and the Debit Card.

They can kiss my ass.

[spanone]

2. i pay off my card monthly, if they start charging, i'll stop using...pretty simple

they STILL make money, they charge the businesses for using the card....

[subterranean]

3. I'm one of those "deadbeat" customers.

If they start charging me annual fees and immediate interest and take away the rewards programs, I will cancel the card. (That's probably what they want me to do.)

[zipplewrath]

7. In theory

I've got a mastercard that, in theory, has "zero annual fee for life". Yeah, I know, fine print and all that. I'll be interested to see how and if they get out of it. Because even worse, I don't really use it much.

[gratuitous]

4. This is rich!

"People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride."

Two things: Bull. Shit.

If a credit card issuer could make more money off you, they would and do. Routinely. Every fucking time. What Mr. Robertson means to say is that people using their credit cards responsibly haven't been quite the revenue center that people who are irresponsible, or who get jammed up occasionally are.

If you need a credit card, join a credit union. Credit unions, like credit care companies, are answerable to their shareholders. The big difference is that the shareholders of a credit union are the members. And instead of looking for credit cards to be a major source of revenue, credit unions look to their shareholders to be responsible managers of their own money, and help them to do it.

If enough people did that, Mr. Robertson might actually have to get a legitimate job.

[Towlie]

5. It's not a free ride. Merchants pay the banks a percentage to take our credit cards.

[onetwo]

6. I believe this was explained to you in your other thread a week ago.

As cheap as it is these days for a bank to borrow money to lend to its customers, it is not free. Lending money completely unsecured for any amount of time is both risky for the lender and not free for the lender. In the past, lenders recouped their costs by charging all borrowers an annual fee. They moved away from the practice when they found that it was actually more profitable to not charge a fee and build up a much larger portfolio, even if it meant taking on lots of people who may never positively contribute to the bottom line. The strategy was to shift the cost of credit to those with imperfect histories. Now that Congress has (CORRECTLY) limited how much the banks can charge people with less than perfect credit, the expected result is an increase in costs for everyone else. Imagine if an interest rate cap would have been applied -- it would have worked out great for less than responsible borrowers (at least those that weren't immediately cut off), but increased pricing for the majority of people that already enjoyed prices under the limit.

Now, the banks' story is not to be believed in its entirety -- they DO earn significant fees paid by merchants every time the "deadbeats" charge anything -- but otherwise, it's just Economics 101.

BTW, I told you that the bill would pass once the cap idea was shelved and focus was put exclusively on fees and penalties ;) 90-5, a bit better than the "36 or 37" that you predicted :D

[Better Believe It]

9. I don't know what you're talking about. It seems like you may be against any

limits on what banks charge credit cardholders, especially their "loan shark" interest rates.

I can't tell if you supported the bill that was passed or just opposed any limits on credit card interests rates.

Do you have any credit cards?

[onetwo]

13. I am against caps on intro pricing. I am very much for strong regulation of fees and penalties.

It's a free country, and I believe that a bank should be free to price themselves out of the market if it so chooses. As long as they are upfront, banks should be able to charge you whatever they want BEFORE you've become a customer. Once you, as an adult, examine the terms and determine that it works, you should be protected from ANY FURTHER CHANGES to those terms by the bank. The circumstances under which changes can occur should be strongly regulated. Simple.

Look at the responses in this thread. Consumers won't stand for unnecessarily high prices. So it doesn't matter if a bank is free to charge 200% -- bad pricing = no customers = out of business/lower prices to respond to the consumers. Again, ECO101.

There are people that are offered a 24.99% APR upfront because they can't qualify for anything else. A cap at 15% or whatever would not result in a better initial offer for that customer -- it would result in a DECLINED notice. There are clearly many consumers with this knowledge who would gladly take the 24.99% offer. The fact of the matter is that "loan shark" interest rates mean that people who, based on previous behavior, have no right putting a pen to a credit card application can have access to COMPLETELY UNSECURED credit.

And yes, I have credit cards.

[Better Believe It]

14. "It's a free country" Really? When did that happen, or are you a "free market" advocate?

The unregulated free market caused this economic crisis.

"As long as they are upfront, banks should be able to charge you whatever they want BEFORE you've become a customer. Once you, as an adult, examine the terms and determine that it works, you should be protected from ANY FURTHER CHANGES to those terms by the bank. The circumstances under which changes can occur should be strongly regulated. Simple."

A law prohibiting such interest rate increases would have accomplished that. As things stand now, they can charge whatever rates they want without a cap and can increase rates for current cardholders.

So you were against such interest rate regulations and now you favor them?

[Raineyb]

19. Credit unions have caps on their credit cards and they aren't hurting

Banks charging whatever they hell they want is called usury. The only reason why they aren't held to account for such behavior is because the Supreme court allowed banks to move to states with no usury laws and import their usurious interest rates into other states. Econ 101 is nice to quote in theory but in the real world there are government entities to reign in the behavior of business. A concept with which you seem to have a problem.

And BTW there are entities which charge more than 200% interest on their loans but apparently, payday loans which target poor people aren't on the radar because we don't give a damn about poor people in this country.

You can make excuses for the rapacious behavior of banks in this country all you want but don't pretend that just because something shows up in your econ 101 book it's the law as it's practiced in the real world we both know that's not true at all.

[ejpoeta]

8. the problem, as i see it, with the credit card industry is this...

instead of making sure that the borrowers could reasonably pay back their debt, they decided that more money could be made by giving credit cards to college students without jobs and people who normally would not be able to get a credit card. same is true with the subprime mortgages. if you lend to riskier borrowers, then you should expect that they may not be able to pay it back. that is why you get to charge such high interest.

i am not saying credit card companies don't have the right to make money off of these investments, but they decided that they could get more from riskier borrowers. i know as a person with a poor credit score, that i have received countless credit card offers over the years. they WANT people who they know will take forever to pay it off. as long as i were to be paying the minimum, imagine how long they could accrue interest and make money!! but as a person living on the edge, a person like me could go either way. i could go on teetering paying minimums for years... or i could lose a job or have my car break down or an accident, and living so close to the precipice, what would be the first bill to get cast aside when i am drowning?? right or wrong, the credit cards would fall behind first.

[Bluenorthwest]

10. Everything moves to the credit union

I'm sick o' the scoundrels and cheats. Bye Bye.

[Better Believe It]

11. MSNBC Poll: What will you do if your credit card rates and fees rise after this reform?

What will you do if your credit card rates and fees rise after this reform?

MSNBC Poll Early Results

50.9% * I will cut the cards into tiny pieces and set them on fire.

37.6% * I’ll keep them, but start using cash more.

0.5% * I’ll pay whatever they gouge me for.

2.6% * They are already raking me over so bad, I don’t think it could get any worse.

8.4% * I pay cash for everything.


http://www.newsvine.com/_question/2009/05/19/2838011-what-will-you-do-if-your-credit-card-rates-and-fees-rise-after-this-reform

[Bonhomme Richard]

12. So much crap. I have my own business and they charge me.....

close to 4% for every sale that a customer charges therefore there is no such thing as a deadbeat. ( Though I guess I am one by their definition) They are making plenty of money off those that pay down their balance every month. That is EASY money.
Greed....pure and simple.

[old mark]

15. We will have our last CitiBank card paid off by July. We have cards linked

to our Credit Union account, and 1 store card for gardening stuff from Lowe's.

We will NEVER get another credit card again.

Hear that, credit corporations? NEVER AGAIN!
We are also closing our last bank account - we are dealing only with a Credit Union from now on.

mark

[sandyj999]

16. No good deed goes unpunished. Back to cash and debit cards for me.

I really don't like charging things anyway even though I am one of those "bad" people. They can go to hell!

[Better Believe It]

17. For the late night crew. I'm going to bed.

[FrenchieCat]

18. The Fox crew was talking about this, in the minute that I tuned in

Just to get a general sense of the bullshit hitting the airwaves today.

They were cackling.... "If you pay your bill on time, you'll be paying for those deadbeats who don't".

I changed the channel.

This is just more of that.

Pity.

[Better Believe It]

20. For weekend DU'ers