Of course rules and legislation meant to 'protect the consumer' will end up hurting the consumer.

You can't possibly expect the banks and financial companies to pay their way or feel any pain.

Oh, thanks Chase, for raising my rates on a card that's paid on time and never over the limit since 1999.

Meh I have a CC balance of $153... Just bought a couple of plane tickets. Pay it off every month and treat it like cash (those seem to be the parts people have trouble with).

This is a GOOD thing. Credit should only be given to people who deserve it. As long as there is still a vehicle for people with no credit rating. Like prepaid cards etc. If you screw up your credit, you deserve to have it taken away.

While I think this is a good thing, what is going to happen when they do decrease your limit/close your account. Do you then have to pay extra fees because you are over your limit? Are you going to have to pay the interest until the account is paid off?

This is a very good thing. It might suck for a few people, but the end result will be good. It means that for these few people, they won't be able to dig themselves into a deeper hole -- meaning they won't default on their payments and have the losses get passed on to the rest of us. Yes, it will suck for them, but it sucks that they got cards in the first place.

@doctor_cos: I pay my cc bill every month in full, I literally got my rate knocked down yesterday from 13.0 to 9.99. Couldn't believe it was that high to begin with but I'd try giving them a call

@doctor_cos: "Oh, thanks Chase, for raising my rates on a card that's paid on time and never over the limit since 1999."

What I hear there is "Oh, thanks Chase, for trying to make a profit off a customer that never pays interest, fees, or overage charges."

They're a bank. They're supposed to return a profit to the shareholders. You probably cost them money rather then gain it, so unless you are a big ticket AAA value customer, why should they keep losing money on you? Is it the bank's obligation to front you money without being able to make profit from it?

Nothing wrong with this, other than it doesn't go far enough nor take effect soon enough.

Finally, a very small correction of deceptive business practices and the weaknesses they prey on. At least until the rats chew another hole in the dike.

While I will have all my balances paid off within the next year, I can't help but wonder if FICO will take this into account when they calculate credit scores, or if this will drop everybody's credit score overnight....

@AnonymousFinger: The problem is that many people with bad credit do deserve it, and will be able to pay it back without issues. To a credit issuer, a risky customer that brings in heavy fees through late charges can actually be more profitable than a prime grade customer. The government regulations will make it more difficult for a bank to determine the "good" bad risk from the "bad" bad risk - so they'll just stop issuing credit to risky credit grades altogether. This is bad for the economy, and hurts the ability for people who have made mistakes (like myself!) from being able to get back to good credit status through good payment history.

When I first heard that the rules would not go into effect until 2010, I was glad, because not only will it take that long to get all of the computer changes and stuff ready, it will also take that long to both prune the customer base AND for the customer base to get used to living within their means. At this point over 38% of the CC industry revenues are from fees and penalties, so yes, we'll see interest rates shoot up NOW while they still can, and we'll see credit limits dropped. Also expect merchant fees to go up and expect new fees you don't pay now (think: paper billing fee, quicken integration fee, custom card design fee, second cardmember fee) and figure on an end or reduction to "no annual fee" cards.

I agree wholeheartedly with the post here - cash is king, and most importantly, if you NEED credit to float your cash-flow, you absolutely MUST MUST MUST become your own credit card company and do whatever it takes to build that cash cushion so you don't need revolving debt to pay your routine expenses.

I've said many times here that once you're off the credit habit, you see what you actually earn very clearly, and when that happens, you start to think very clearly about what you actually need vs. what you want.

@TheFlamingoKing: You realize that they make money off of every transaction, right?

If you can't cover the purchase, don't swipe.

@QuantumRiff: If it drops everyone equally, why does it matter what the number is?

@illtron: It will also suck for everyone who is actually responsible with their credit and yet gets a reduced credit line or higher interest rate.

@TheFlamingoKing: Sorry, I'm calling BS on that. They're making enough money with the merchant fees. They're just not making money "hand over fist" by screwing both sides (vendor and consumer).

I regularly have between $1-3K on credit cards that is paid off monthly. If my credit union wants to give me 5% off gas, why would I use cash? If AmEx wants to call Burger King "dining out" and give me 3% back, same argument.

@doctor_cos: I am sure those OSHA rules are really hurting the consumer.

I guess those (apparently unenforced) rules of the SEC protecting against fraud and insider trading hurt the consumer as well.

I can think of exactly one de-regulation that has been good for consumers (sort of), and that is when they allowed credit cards to all flock to the lax rules of South Dakota and Delaware, which paved the way for rewards cards.

Can you think of any other de-regulation that was good for the consumer?

gotta get weened off of it sometime, might as well be now. They will just be hurting their own businesses by limiting spending to good customers anyways.

Reducing my credit line? That would be fine with me. I've requested BOA NOT ever ever ever to raise my limit above $5K, yet they keep doing so. I finally gave up arguing with them. Instead, I just never go over $5K, pretending that's what my limit is.

Also, I have a 2nd BOA card I haven't used in over a year and a half...All paid off (Card was cut up last year some time ago anyway). I keep hoping that one day I'll look in on my account, or I'll get a letter to tell me it's closed for good. In the meantime, I'll keep it open. I don't want to risk calling in asking them to close it, and they deciding to close not only the inactive card, but the active card too.

Business practices so horrible that Congress has to get involved in telling companies to cut it out aren't justifiable under any circumstances, and they shouldn't be key to anyone's business plan.

Sorry, bankers, but I'm not weeping for you. Do what you think you have to do, and we'll see if one of your competitors finds a way to be profitable with your customers without compromising their credit or jerking them around. I betcha someone out there will find a way, and they'll get all the customers that you turn away.

@chemmy: I agree, credit cards should never be used as your only line for expenses. I have 1 credit card and 1 debit card. And the credit card is only used for entertainment use once or twice a year. And is always paid at 10x or more of the minimum.

@Sunflower1970: Why would you not want them to raise your credit limit? It only improves your credit score, and it's not like it forces you to use it.

@TheFlamingoKing: Yep those are the customers that the credit card companies are going to miss the most. No more lending $10000 to a person frying hamburgers at McDonalds. Then when they obviously miss 1 payment sticking them with rates they will never pay off, the endless roll of pure profit when all they can pay is the interest will end.

@johnva: I just don't want the temptation. I don't want to fall back on credit for any reason whatsoever. Or maybe I'm just weird.. :)

What does 'cash flow management vehicle' mean?

I use my credit cards as something I'd describe as a 'cash flow management vehicle' -- I use them to buy things in stores, and then pay the bill at the end of the month when it comes due. If I didn't have them, I'd switch to debit or pay in actual cash. If the credit card company would like to take back some of the insane, ridiculous line of credit they've given me as they -- without ever once being asked to do so by me -- have bumped it up over the years, they can certainly feel free.

But that makes me think my guess at what they mean is probably wrong. So what does it mean?

Barring any true emergencies, I will have paid off my cards by 2010 so even if my banks reduce my credit, it should not hurt me as badly as if I was carrying a balance.

Also, does Oppenheimer and Co do any investing with credit card companies? I would be checking up on this analyst's connections...I smell conflict of interest.

They say that they will reduce credit availability to scare folks into backing off these regulations that will hurt profitability, but I will be shocked if the number of pre-approved credit card offers drops at all.

If anything these companies will put even more cards out there (if that is even possible) to get as much profit as they can.

@doctor_cos: No offense, but they're letting you borrow their money. If you want control of the terms of your finances, save your own money and pay cash.

I'm as against abusive credit card contracts as the next guy, but in in the end, you're asking them if you can borrow their money. As long as they honor the contract you both signed, it's a privelige, not a right.

being forced to budget your cash and use credit only when necessary and in a responsible fashion - what a concept!

@TheFlamingoKing: This is not "bad for the economy". This is bad for the artificially created wealth bubble, and will expose the extreme wealth stratification in our country.

This is good for proving that our current economic model is not sustainable, and that it needs to be changed. Stop living in the bubble.

Reduce credit lines as in close accounts as in reduce our credit scores? If that's the case, I'm not quite as much for this.

This is the first step in pulling back the curtain and revealing the extreme wealth stratification in this country.

When the middle class realizes they've been duped into trading their wealth for an illusion, then we'll see some changes.

The consumer credit contraction has been a long time coming, and the rich fear it just as much as the poor.

So basically this is a "here is your punishment for making us follow rules" tactic?

Good! But I don't believe it. Given that "bad customers" who are late, over-limit, etc are fee-generating profit centers, we are supposed to believe that they are going to drop credit to people who are funding the bank?

Or are they only going to drop credit lines to those who pay on time and really don't need a credit card anyway?

Wow, imagine a world where only the rich DON'T have a credit card! American Express - Leave Home Without It!

Whitney notes that for the 70% of households that have credit cards, 90% of them use the cards as "cash flow management vehicles," which means they (you?) could lose a primary source of ready cash should their cards be closed on them.

what a great idea! people living within their means, positively radical

Q: Will they jack up everyone's interest rates right BEFORE the law goes into effect?

A: You betcha!

Since the new law states that they can't jack your rates on 'existing balances', I can see 30% + interest rates for everyone, locked in by the new law.

No wonder the industry agreed to this, they get their interest rates while throwing a crumb to the consumer.

@Goatweed: But I have budgeted my cash...and I choose to live exclusively off credit cards and pay my bill in full at the end of the month because I get cash rewards from the company (1% on each purchase, I think). So this is hurting me if the companies start slashing credit limits across the board. I don't use anywhere near my credit limit, but I don't want them to cut it either.

@Sunflower1970: Well, obviously you're doing okay just "imagining" a limit. That's what most responsible people do, anyway. BTW, the "credit limits" on credit cards don't necessarily really mean they will stop you from spending beyond that. They just mean that they will penalize you if you do.

@Jacquilynne: I was wondering that, also. Isn't "convenience use" "cash flow management"?

@SacraBos: Well, they can lend to rich people and people with good credit who pay their bills in full every month with little risk and still make money off of merchant fees, etc. So I doubt they'll stop. But this may break the current business model of the credit card companies.

@TrueBlue63: I'm not clear on what that line means. Is paying in full at the end of the month not "cash flow management"? Or do they mean something like using credit cards so that more money can stay in savings or investments during the month?

I don't think it necessarily means not living within their means.

It would be annoying to lose my cards, but I would survive. That is because I live within my means. People who don't should have their accounts closed anyway.

@sleze69: Can't say tha tny other forms of "good" deregulation come to mind.

@TrueBlue63: What I take that to mean is that Whitney is saying that for 90% of the households that have cards use them as purely ways of tracking expenses?

No? It's quite a confusing term, but I never got the impression that the person meant people using credit cards as their only source of spending (versus carrying cash) are living beyond their means. Rather, those who do not pay their balance in full and are putting themselves debt are the ones who are not living within their means.

Of course, if that's not what you meant, apologies. Perhaps they should define "cash flow management vehicle".... it certainly seems like they're saying that 90% of the households with credit cards use them to track expenses. Which makes perfect sense. It makes no statement about them being able to pay it off at the end of the month or incurring debt.

@johnva: Yes, this is what makes me nervous. The companies appear to be making arbitrary and random decisions, and since the economy and the rules are changing so rapidly, it's just hard to know if your card will be hit next. Four or five years ago, when we applied for our mortgage, we knew exactly what to expect based on our income, credit score, available down payment, etc. Now you could go into a bank with simply no idea whether you're going to be lent to or not. I feel the same way with the credit cards lately. If I knew what the rules were so I could assess my own situation, I'd feel a lot better. But there don't seem to be rules, they're just making shit up as they go along. Which on the one hand I can't totally fault them for in this economy, but on the other hand, that feeds the uncertainty that's preventing people from making economic decisions.

@AnonymousFinger:

Here here! I am all for reigning in the culture of reckless and irresponsible money management.

"But Whitney notes that for the 70% of households that have credit cards, 90% of them use the cards as 'cash flow management vehicles.'"

Certainly some of that 70% is using their credit card so that they are able to take care of their family's basic needs month to month and not splurging on frivolities. But I am willing to bet that most of that 70% can't make ends meet with out the credit card because they are paying for stuff they don't need (Entertainment, new cars beyond their means, other things the jonses have).

@ravensfire: IMO, it's about convenience and practicality. I do grocery shopping every three weeks or so, and in between I fill in with some of the necessities like milk and eggs. I really can't go to the bank or ATM every single time I need to go shopping and don't think I have enough cash. It's to the point where I use my credit card for everything and I don't even stop at the bank.