Regulation bonanza: Next up, the credit card industry
Today's Financial News - Posted March 31, 2009
The credit card industry has made it through this financial mess with relative ease, but the pain may be just starting, especially if Congress gets its way.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): We all know credit cards come with a horrific price tag. Keep a balance on your plastic accounts and expect to pay double-digit interest rates and exorbitant fees. It is a fact of life.
If you do not like it, do not use credit cards. If one card issuer charges you too much, find another one. That’s the way a free and competitive market works.
But if you have been reading the papers lately, you surely know, the American economy is no longer free and competition is waning. Uncle Sam regulates banks, insurers, manufacturers and executive pay. Now he wants to increase regulations on the credit-card industry.
It is as if our leaders want the nation’s underwater consumers further into debt and even more dependent on Washington’s teat.
Put it on my bill
Later this week, Congressional committees are expected to meet and debate legislation designed to drastically change the way credit card companies operate. It would limit the way the companies can change their interest rates and the way they can charge fees.
In other words, it would lower competition, destroy margins and make the industry less profitable.
Surely, this potential legislation gets the attention of vote-greedy lawmakers as it makes them appear to be fighting for the “little guy.” But they fail to see the broader implications of the patchwork regulations.
Creidt card companies are asked to lend to some very risky customers. High fees and interest rates were the weapon of choice to deter these risks from abusing their credit cards. If these new rules pass, they will be forced to dump these customers or risk a significant hit to their bottom line.
The nation’s major credit-card issuers, Mastercard (NYSE:MA), Visa (NYSE:V) and Discover (NYSE:DFS), have had a tough time weathering this economic crisis. Many industry experts believe the worst of the storm is yet to come. If the whispers about this legislation are true, there is no doubt their next few quarterly reports could be filled with bad news.
So far, their share prices do not represent this potential profit roadblock, which could point to a profit opportunity, especially for the folks bearish on the industry.
This is the kind of legislation that makes politicians drool. It is a chance to make it look like they are fighting for the little guy. In the end, it will do nothing but hurt all of us.
Expect to hear much more about this news in the next few weeks. It could be a major theme of the current administration. If so, America’s businesses are in big trouble.
Next Article: Will the second quarter treat us as well?
3 Responses to “Regulation bonanza: Next up, the credit card industry”
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March 31st, 2009 at 7:29 pm
I for one don’t buy the poor-financial-institutions argument. With 20-30 more years of purchasing ahead of me, I won’t forget the banks that saw fit to penalize me when I missed a payment–by doubling my interest rate. I’m not a credit risk and have the credit history to prove it. By jumping on every (legal) opportunity to benefit from my struggles, the lending institutions have lost my trust–and a lifetime of business. If you can’t build a strong business at 15 percent interest, you’re doing something wrong. I CAN’T INVOICE my clients 29.99% interest when they are late paying me!!
April 1st, 2009 at 10:57 am
MasterCard and Visa are not credit card issuers. They run the network. Discover runs a network AND is an issuer, like Amex.
April 22nd, 2009 at 10:28 am
The credit card industry has been allowed to run wild for far far too long. You may be too young to remember, but when c-cards first came out, interest was tax-deductible. The Republicans did away with that to allow the industry to jack up interest rates to usurious levels. Most states have interest rate limits, however, these do not apply to c-cards. How strange!
Here’s how it goes. You lower the limit on the card. Then charge an over-limit fee, then change the payment due date, all at once. Good for an extra $200 bucks from the dumb consumer. Then wait a couple of months after reporting the late payment to the credit reporting bureau. Then, tell the dumb consumer that because of their credit score, you are raising their interest rate, but, if they don’t like that, they can close the card, pay it off and go away. Pretty neat, huh?
Scaborous. Of course, Discover just came up with a much easier solution for the money grab.
Here’s how that goes. First you flood the dummies with all those little checks and say UUUUUUUUUUUUUSSSSSSSSSSSEEEEEEEEEEEEE them, you deserve a break, vacation, food on the table, whatever. Then, send ALL cardholders a note saying, Hey, dummies, guess what? In 25 days we are going to raise the number of points we charge over prime to calculate your interest rate. Everybody’s interest rate goes up in one swell foop. That’s really really neat, huh?
And, if there are some hardass dummies out there who decide to not use their cards and pay them down, we’ll send them a letter saying, we are closing your card because non-use places you at risk for fraud and identity theft. WHHHHAAAATTTTT? Yo, Lucy, you better ’splain that one to us! But they don’t. The bank god has spoken and the consumer dummies have NO RECOURSE but to suck it up.
I think not, which is why it is time for some regulation and some protection against UNFAIR AND DECEPTIVE PRACTICES!!!!!!!@@