Posted on 04/24/2009 3:30:54 PM PDT by Painesright
With much fanfare this week, Congress and the Administration began a series of actions designed to protect over-leveraged consumers from the high fees imposed by credit card lenders. As with most other initiatives devised by government, this policy will create a host of unintended consequences that will undermine the benefit the program hopes to create.
Anyone who carries a credit card knows that billing practices have become much more aggressive, punitive, and seemingly arbitrary over recent years. Sadly, these fees have become one of the only means the companies can use to compensate for the increasing defaults on their unsecured loans.
By mandating that the credit card companies lower their fees, the government will severely hinder their tenuous profitability. In order to avoid bankruptcy, the companies will have to deny credit to marginal borrowers, which would reverse the “easy access” policies that have defined the industry over the last generation. The resulting contraction in consumer credit will run contrary to current Administration efforts to keep Americans spending. The horns of this dilemma are completely missed in Washington...
(Excerpt) Read more at europac.net ...
Peter needs to run for Senate. I think he's about to move from Connecticut to Florida, since the boneheads in Conn are proposing a raise in the state income tax. I hope he does move here, we have two Senate seats we aren't really using right now anyway...
Bailing out card issuers is nowhere in anyone’s proposal, yet.
I would like to see card agreements offered in tiers. One tier would reflect what the gummit wants. Small fees, small credit limits, high interest balances always pay off first, no universal default. It would be the tier you get by not explicitly asking for another tier. Other tiers, which must be explicitly opted into, would offer greater leeway in credit limits and eligibility for special offers in exchange for greater consumer risks which must be listed in a non-obscure way in the offer and on every bill.
“... Tenuous profitability...”
Credit card companies? Tenuous profitability? Yeah, right.
I like your idea. Except that freedom of informed choice can’t possibly work!
There is one thing being done by credit card companies that I would like to see stopped. It’s called “Universal Default”.
Say you have two credit cards at 12%, and for whatever reason, you trigger the default interest rate of 27%. The following month you look at your two statements and find that both cards are now charging you 27%.
What “Universal Default” says, is that if you are late in paying any debt, even if it is not their card, they can raise your interest rate to the “default” rate.
Read the fine print in any credit card offer, if it mentions “Universal Default” anywhere, think twice about applying.
Some cards restrict this only to other cards by the same issuer and/or cut to default rates only with accounts more than a month behind. The Fine Print Varies.
Once again congress is smarter than business, so Praise Obama, more money for free : "The bottom line is that credit card lending is a very risky business. The debts are unsecured and the probability of default is high, meaning big losses should borrowers choose not to pay. In addition, should a borrower file for bankruptcy, credit card debt is often the first to be discharged. Given the risks, interest rates need to be very high to keep lenders in business. One way to keep a lid on rates for those who do pay is for lenders to weed out those most likely to default. This can be accomplished through higher rates. Not only does this discourage riskier borrowers from taking on more debt, but it gives lenders a bigger cushion to absorb losses. However, by interfering with card issuers' attempts to better price risk and limit losses, the government will reduce credit availability.
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It's so typical. DC comes down on the credit card co.'s. They in turn tighten their limits and issue fewer cards. The economy has another brake thrown because now borrowers have less credit to buy large ticket items with and then DC will blame the decreased availability of credit on the banks.
Direct link : Here They Come To Save The Day: credit card fees
Sorry I disagree with Schiff and many freepers. All the credit card companies are, ahem, BANKS. That means that they are already the beneficiary of a number of government monopolies and special priviliges. (I’m not even talking TARP, bailouts, PPIP, etc. — just the basic banks turn debt into assetts trick).
In return for granting them special priviliges, we have every right to set some basic rules for them. Especially since their segment has shown itself unable to treat consumers fairly.
Some basic level of regulation is completely reasonable, especially given that they use all sorts of ridiculous scams to raise rates. (Moving due dates, “20 day month”, etc.)
This is the place where I seperate from the pure libertarians. Maybe if we had true free market banking I could accept this, but we do not. Instead we have government / bankster synronized looting of average Americans.
The Republicans sound ridiculous standing up for the bandit banks based on their talking-points knowledge of economics. They sound as dumb as the Dems on most issues, and that’s saying something.
I get 1-2% cash back on my Chase and am treated like royalty (because they know they will get paid) but see others less ambitious load up their card with the 0 % APR and then are late on a payment or two and APR goes up to 10-20%. My first thought is these people are stupid, they bought things I could afford more them them but I didn't buy. These credit cards will in response to the regulations cut off credit to these customers as Schiff says(like back in 1970s). As he says, this is a good thing.
Back in 1970s they used printing money as a substitute for easy credit rules.
Dont even bring up Republicans. Those worthless bags of crap stand for nothing.
If companies want to charge 300% interest or deny someone credit, that is their choice. It is the consumer's choice whether or not to use this business. If all the c/c companies jack up their rates (for new customers, or defaults) nobody will use them. Competitive business will over-rule and the rates will drop.
If the government interferes, no matter if it is to gorce lending, increase the rate, or lower it, that rate will be artificial. This is how we got into the housing mess.... Kongress decided credit was a civil right and forced banks to lend to the un-creditworthy... eventually too many defaulted and look what happened.
"Over leveraged" usually means 'I went and bought all kinds of crap I didn't need and couldn't afford.' Now granted, some people fall into bad times and wind up in the cycle of using a credit card to pay for things, but it is still the consumer's responsibility to understande the terms of the agreement...'let the buyer beware.'
resulting contraction in consumer credit will run contrary to current Administration efforts to keep Americans spending.
I disagree with this statement. If Obammy's recent actions are any indication of what is to come.... they will notice this "dilema" right off and force c/c companies to lend credit to EVERYONE....for low low low interest rates!!!! And, shortly thereafter, the c/c companies will receive their bailouts because they are so "vital" and are "too big to fail."
gorce = force
Ol Floppy Ears is trying to get the card companies to play nice so the masses don't start abandoning the monthly payment. As this debt is unsecured, nobody loses anything by walking away. Hard to reposes last night's dinner!
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