"Americans know that they have a responsibility to live within their means* and pay what they owe," the president says. "But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties, and hidden fees that have become all-too common in our credit card industry. You shouldn’t have to fear that any new credit card is going to come with strings attached, nor should you need a magnifying glass and a reference book to read a credit card application. And the abuses in our credit card industry have only multiplied in the midst of this recession, when Americans can least afford to bear an extra burden."The new law will have unintended consequences: People who aren't credit-worthy will no longer have access to credit. This is a good thing overall, but it's a bad thing for businesses that sell discretionary goods.
* Unfortunately, for far too many people this is simply not true. It's not true at the household level, and it is certainly not true at the political level. And now we are cleaning up the mess.
7 comments:
Wow I guess the credit card companies and banks are just swimming in profits....oh wait they are not...wish someone would explain what happens to the profts, could it go for bad debts perhaps. Oh wait the banks can sell this stuff on the open market and call it CDOs..wait didn't we do that already?
Let's see, the government should determine how to determine credit risk and cost? Yep I really want Barny Frank to determine who gets what credit at what cost...can you say his voters get more credit at lower costs and the rest of us get to pay more to make up the difference..but perhaps I am wrong again.
I'm wondering if the banks will just make up the difference by increasing the fee that they charge the retailers.
I work back office for a credit union, and we offer visa credit cards at 13.9% fixed cash/credit apr is the same. We have no fees whatsoever, no late fee, no overlimit, no annual fee. Now you would think we make pretty penny charging a rate north of 10%, but the truth is by the time you pay data processing fees, and statement printing, card production, and disputes, and card fraud and bankruptcy losses, and then good old charge offs because its unsecured debt people dont place a high priority on paying it back. We only clear about 3%-4% annual return on the portfolio after all those costs. Which is normally just well enough to keep up with inflation. Of course megabanks have the advantage of large card transaction volumes they get to abuse the merchants for more interchange income (the merchant is charged a percentage of each sale for the privy of accepting a credit card for payment), with that and their outrageous cardholder fees it can be a profitable endeavor.
Paul Writes,
Oh, goody, Guberment's going to save me. So, I imagine they are quit taking half of everything I earn, they paying a tax on what I buy with the other half, and if its valuable, taxing me again every year forever.
Yeah, Credit Cards. Big economic threat.
Boob Bait, razzle dazzle shell game distraction from the biggest looting/debt bomb in the history of the world, using the police power of government to take by force and threat of force from some and give to others.
Did I mention your kids, and everone's that will work are going to be Russian style debt serfs when they get older?
So people with FICO scores in the 500's won't be able to get credit cards?
The horror, the utter horror!!
I stopped using CCs altogether around 5 years ago after personally seeing the absurd finance charges the banks (specifically, B of A) have the audacity to charge. Good riddance.
So people with FICO scores in the 500's won't be able to get credit cards?Yeah, imagine! Now, if people have crap credit, they won't be able to borrow money. 'bout time.
But personally, I think the "magnifying glass and reference book" part is hyperbole. It's not the complexity of the language in the contracts; it's the sheer useless mass of words.
But here's a scenario in the news lately that the media makes out to be evil but which is often totally avoidable:
Unlucky Borrower gets a notice that the credit card company is raising the rate from 12$ to 18%. For no reason, out of the blue. "Oh, what can we do? Oh, we're being shafted by an evil bank!"
Well, as long as the rate rise wasn't due to late payments, all the borrower needs to do is call that company and tell them to close the card, and then he can pay them back, over time, at the old interest rate. (I did this before some years ago before I got off the debt treadmill.)
Big disadvantage for spendthrifts, though: You can't use that credit card anymore. No more charging -- only paying. I guess, thinking about it, it does seem kind of un-American, eh? :-)
"3%-4% annual return on the portfolio"
Historicaly, a good year for any bank was a 1% return (consider the volume).
3% return on tens or hundreds of millions of dollars is a great thing for anyone providing credit cards.
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