Credit Cards

What a week for credit card issuers! The word “retribution” comes to mind.

Today’s meeting with Obama at the White House, Dodd and Schumer today asking Bernanke et all to use the Fed’s powers to block issuer interest rate increases, yesterday’s passage of the Credit Cardholders Bill of Rights out of the House Financial Services Committee, etc. Just a few of this week’s highlights…

Way back in early February, I wrote a blog post about “The Pressures on US Consumers from their Credit Card Debt” – primarily noting how the credit card issuers were actually digging their own grave with their upward interest rate adjustments. A natural (if silo’ed) response by issuers to the need to protect/improve the P&L of the credit card businesses inside major financial institutions.

In spite of this week’s angst, we’re still a ways away from any legislative response actually passing (in the Senate, in particular). The financial services lobby is certainly fully engaged on the issues. It will be fascinating to see who prevails.

What’s the lesson the credit card industry should learn from all this? Anything?

3 Replies to “Credit Cards”

  1. “primarily noting how the credit card issuers were actually digging their own grave with their upward interest rate adjustments.”
    Except that the changes in bankruptcy law enacted a few years ago meant that even if a c.c. customer went bankrupt, they still couldn’t easily wipe it out, even with usurious rates.
    Still, I’m pretty heartened by today’s events, well overdue. I heard a Republican congresscritter on the radio today explain how with a competitive environment for card issuers trying to gain customers, that putting limits on interest, etc., didn’t make any sense because the market would sort it out. Right. Because the market’s done such a good job so far. I think he was still stuck in the “market is rational” mode of thinking.
    He also tried to explain how the “50 percent of Americans who pay their credit card bills in full each month” (which sounds rather high, but who knows) would suffer from higher interest rates required by these changes, which I’m not sure how they do when they’ve paid their balances off.
    Honestly, if credit card companies have to offer credit to fewer people at higher rates to make the money they need to, that’s all to the good. We need a massive consumer credit contraction to match our actual ability to pay.

  2. I don’t like price caps. History has proven over and over they lead to the exact opposite reaction the market needs.
    Let the private entities sort it out. The last thing the American Consumer needs is the Govt riding in yet again to resolve them of their outrageous spending. It’s high time the American Consumer owned up to his ways.
    One thing you can be sure – if credit card companies are locked by legislation from raising rates, they will find numerous other methods of preserving their P&L, which as Glenn notes will likely include less credit, more fees, and other changes to the 20 pages of fine print in each Terms of Use. I’m not a fan of issuers’ business models but I’m less of fan of the govt stepping in to help the consumer who got themselves into this mess all by themselves.

  3. I thought there was remarkably little substance from today’s meeting at the White House, at least from what I heard. Where are the anti-trust police on this? Aren’t the high correlation of cc vendors’ practices ipso facto proof of collusion? If not, why hasn’t someone come along to offer cc debt at lower rates but only for customers with good credit? Seems to me you should be able to make a lot of money lending at 10% and borrowing at <1%. The only industry worse than cc's might be the ticket biz.

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