Friday, May 22, 2009

Credit Crackdown?

This week the New York Times ran two contradictory articles about the current crackdown on credit card issuers. Monday's article, "Credit Card Industry Aims to Profit From Sterling Payers," suggests that since Congress intends to limit the ways in which card issuers have long made money off high-risk cardholders (e.g., slapping them with massive late fees and jacking interest rates way up after a single late payment), the poor banks will have no choice but to start going after "deadbeats"--that is, the 40 percent of cardholders who pay their balances in full and on time every month. According to the article, people like me who have been getting a free ride should expect to start paying annual fees or maybe being charged interest on each purchase immediately after it's made, with no grace period for paying off the bill. But Tuesday's "Your Money" column, "Consumers Are Dealt a New Hand in Credit Cards," dismisses these ideas as "just so much saber-rattling," since credit card issuers don't want to lose customers--even "deadbeat" customers--if they can help it. After all, the card issuer does make money from the merchants on every transaction, so it's definitely in the banks' interest for people to continue charging as much as possible to their cards, even if they don't do the issuer the additional favor of carrying an interest-laden balance.

The second idea seems more plausible to me. After all, card issuers have to realize that if they start making their terms too onerous, people like me will simply jump ship. Ten years ago, it might have been difficult to get by without at least one credit card, but nowadays there are more options--PayPal for online transactions, debit cards for in-store purchases, reloadable prepaid cards, gift cards. And moreover, if there's even one card out there that still has no annual fee and a reasonable grace period, then all the deadbeats can switch to that card, and whoever issues it will get a whole 40 percent of the market overnight. So unless all the banks get together and make a deal not to make such a card available (which I'm pretty sure would be illegal), I don't see how there wouldn't be at least one of them eager to be the only no-fee card on the block.

I'm willing to live with having my rewards dialed back. The main reason I used the card was for convenience, anyway; the rewards were just a nice bonus. And if they want to lower my credit limit, oh well, it's not like I was using it all anyway. But the minute they try to stick me with an annual fee, it's au revoir, Visa.

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