It only makes sense. If someone becomes a higher risk (by missing a payment, losing a job, etc) and a credit card company can't increase the interest rate (to offset the higher risk), they'll just close the account.

Perfect!!!! Credit Card reform retort...and why they need to be able to get away with backhanded tricks. They spend alot of money figuring out how they can short sell their customers, the good ones and the bad ones. The argument I do not buy. What happened to doing business in good faith, with reasonable expectation of a decent profit? Did we kill that off for win at all cost?

Perhaps, if a client isnt worthy of a card with less than 35% APR, they shouldn't have a card in the first place.

People think everyone should have access to credit cards, the same way we thought everyone should be able to get a mortgage 10 years ago. Now we realize, certain simply can't afford a credit card.

You would think that with all the hate this country now has for ANYONE in the financial sector, they would just shut up and sit on their hands and wait for the environment to get better for them to loosen up regulations, but I guess not.

Deregulation was the WORST thing this country has ever done. The regulations existed in the first place because of how untrustworthy these goons where. And time and again they have shown that they can NEVER be trusted to walk the balance between profits and care for the consumer.

They realize their own mortality. Nobody NEEDS credit cards. If you rely on credit cards to cover shortages or emergencies, you are a bad money manager for your own finances. I know from whence I speak.

man screw them banking big wigs...those b@stards DO control everything, and after the economic volcanic eruption they even control government.

now they're pulling strings by saying that if you reform we'll cut off credit, really, you're cutting credit cause you're not getting the extravagant fees anymore, how about you cut a few zeros off your paycheck and help CC holders out a bit for a change. stop raping them for your benefit.

and "when they need it most", I think having too much of it is what's gotten sooo many people in trouble, so people dont need more of IT! and there should be no correlation between the reform and you having to screw with ppls current credit cards!

damn you banking world!

Now that comment is greed talking, not a sensible officer of the bank.

They need to understand that their profiteering days are nearly over and sensible management of their assets are on top of them, like it or no.

That boy better shut his yap and reread the reformation act, for it will get passed, like it or not.

It doesn't necessarily have anything to do with a person's credit or if they've missed a payment, etc. You can have a great credit score, never have been late, have a low balance - perfect everything, and they are still doubling your interest rate! They can do this to anyone, whether or not you've done anything to deserve it.

If we aren't allowed to ream our customers, our profits...I mean the customers will suffer! We demand to be able to change any fee, any rate, for any reason, and at any time, and if you fail to pay, use any brand of baseball bat to break any joint.

@Jim Topoleski: It's not just profits vs customers. It's short-term profits vs. long-term profitability. Lots of people in the morgage industries knew that they were making a lot of bad bets. But the rewards were structured in such a way that making a bad morgage was more profitable for them personally (and in the short term) than not making one.

The banks did the same thing with credit card debt... they overextended, sacrificing long term profits for short term personal gain. If they're going to survive as an ongoing concern, there will need to be regulations against this sort of thing. It appears that the "don't screw your customers as much as you have been" clauses are in there mostly to frame the debate for the public.

"Challenging" is secret banker code for "less profitable."

The higher interest rates are used to offset the losses from the high-risk borrows who default.

That's why low-risk borrowers get all the perks (lower interest rate, cards with better incentives), as they are a steady source of profit.

@tard: and they should

@tard:

Any more, I think they are screwing over the low-risk borrowers too, because too many high risk borrowers are defaulting.

@tard: Yes, they should close the account, but increasing the interest rate isn't a very good business practice in my opinion. If they can't make their payments now at 20%, what makes you think they'll be able to make them at 30%?

jstonemo:
Nobody needs a lot of things. Matter of fact, we don't need most of the things in our lives today, they're just really nice to have.

As for relying on credit cards, I tend to use them as a evener - with them I can keep more of my money in higher earning but less liquid assets. Pay them off in full every month so I don't pay interest.

After that, it becomes situational. If you earn enough money - and 'enough' depends a lot on location and circumstances, sure, it can be a bad sign. But what if that emergency is particularly large?

Credit is good used wisely. But a large portion of the population hasn't learned how to use it wisely.

Credit isn't a Constitutional Right. If the banks aren't making a profit on credit cards, then they should absolutely cut people off.

@Saboth: I mean the customers will suffer!

Certainly they will. The CC company closes Joe Minimum Wage's account because they can't charge 32% because Joe doesn't always pay on time and he has that bankrupty.

Meanwhile, Joe needs some money - so he goes to a payday loan place and pays an effective 400% interest rate.

You have to consider the alternatives.

Fact: this regulation will increase the average APR charged to everyone and result in even more drastic credit-line cuts than you see today.

It's not a threat. It's not being made of whole cloth by banker lobbyists. I'm not even against the proposed legislation! But that is the fact. Credit cards will be harder to get, more expensive to use, and much less available as a source of emergency funds. Understand that accepting that reality is a consequence of more consumer rights in this area.

Not that this site considers credit as anything more than devil juice, of course.

@tard: Here we get a little unfair. Just because you lose your job, doesn't mean you're an automatic risk. I can survive off my savings for at least four or five months without ever touching my credit cards. I'd be extremely upset if any of my cards were canceled because someone sitting behind a desk ran some numbers and thought I was a risk.

@Firethorn: Or maybe Joe will learn to live within his means.

Anyone who has read the main provisions of the credit card act (conveniently posted on Consumerist) realizes that these aren't severe, punishing regulations. They're simply meant to take the abuses out of a one-sided agreement and help level the playing field again. In reality, the legislation is simply enforcing the terms of the agreement made when the card was issued and not allowing credit card companies to arbitrarily (and often unknowingly to the consumer) change the terms of the agreement.

@Blackadar:

Joe will not learn to live within his means. Ever. You simply have to accept that.

@tard: Why do you think increasing the rate NOW is a good idea? Yep, let's just make it even harder for someone to pay something off they are obviously having issues paying off now....

@pecan 3.14159265:

Yeah, uhm, that is exactly what any reasonable credit issuer would do. I'm not interested in your life story or personal financial situation, quite frankly. My job is to play the percentages, and if you lose your job expecting your creditors to take no action you're insane.

@tard: And then other companies (colloquially known as "competition") will have a chance to take on that customer, if they like.

@nakedscience: Years ago I ran up a lot of debt on medical bills for my fiance and was laid off. When I became employed again I spend several years barely staying afloat slowly paying down the credit card bills. When the bankers used Cross default to jack my interest from 8% to 34% they never got another dime, I knew I could never dig out, so why try?

Of course the "Industry Group" wants us to act like they're an all-powerful united front that no-one can argue with or out-bid -- monopolies have to be formally illegal for a reason; they're a cushy business prospect.

Fortunately that isn't even remotely the case. This bill will hurt the companies who don't evolve, true -- and that's precisely the point. They SUCK the way they are now, so the government, as a representative of the people, is rightfully telling them "evolve or die".

Thankfully the chances are very good that either some of them will evolve (find ways to make money offering credit without using tactics that would make Al Capone blush), or new companies will step in with better ideas.

The big old behemoths who're complaining that forcing them to play fair will mean they take their toys and go home? Are totally welcome to.

@Mary Marsala with Fries:

That's the other fun problem!

The government has provided tons of TARP money to virtually every investment firm. That is free capital provided by taxpayers to increase the lending capacity of the various firms. However, the money wasn't provided on a level playing field - some banks got a lot more than others, and the ultimate proportions of equity available at the firms to collateralize lending were not taken into account by the TARP process.

Therefore, has the government essentially created "winners" and "losers" in this artificial credit market? Will that be counterproductive to any recovery? What are the real competitive effects? Nobody knows, and that's a big problem.

The credit card industry is the most profitable one in the United States with annual earnings in the $30 billion range. Many people might be surprised to learn that a single credit card issuer -- MBNA -- earned 1.5 times more profit than McDonalds in 2004. Citibank, another major credit card issuer, earns more profit than both Microsoft and Walmart.

If its a difficult lending environment, then maybe credit card companies need to lose money this year like a lot of other companies have. But alas, people live and die by their cards and the industry knows that, thats why they can raise rates, increase fees, create fees, cut credit and a myriad other things and get away with it.

Personally, I wouldnt mind a little collateral damage if it would give the credit card industry a good beatdown and a black eye.

@Mary Marsala with Fries:

The "evolution" is to cut off credit to risky borrowers. Profit is risk. If legislation remove the profit, banks remove the risk. Have you tried getting a private student loan recently?

HiPwr: True, credit cards are not a right. No one said they were.
OTOH, screwing your customers into the ground with ridiculous interest rates isn't a right either.

@Darrone:

"Perhaps, if a client isnt worthy of a card with less than 35% APR, they shouldn't have a card in the first place."

Let's say, for whatever reason, the only way for you to get by in the next 5 days is if you take out a loan at %35. Let's say you're waiting on a check to clear, so you know you'll have the money to pay it back.

Do you really want the gov't to take away that option entirely? A lot of people will take those loans and have no way to pay them back (that's why the interest rate is 35% in the first place), but for those people who do pay them back, that option is gone.

@HiPwr: actually, not only are banks making a profit on credit cards, but credit card banks are generally TWICE AS PROFITABLE as their non-credit card counterparts. the average ROA (return on assets) for a non-credit card bank is 0.5%-2.0%. the average ROA for a credit card bank? 2-4%. source: [www.federalreserve.gov]

don't ever let a credit card company trick you into thinking they aren't profitable.

@tard: I believe part of jacking up the rates on accounts which might default is to crank up the amount they can write off when it does. I would love to see an investigation into how much inflated interest is written off to reduce the tax burden of some of these corporations.

@ADismalScience: last time i checked, that was happening anyway.

this isn't the first time we've had credit card reform, so i doubt the changes will be as drastic as you claim. give andrew kahr 6 months & i guarantee they'll find a way to double their profitability even with the new provisions & the average APR will still be ~15% - where it's been for 20 years.

@ADismalScience: There isn't any final legislation yet, so how can you state any facts about its effects?

Sources please.

@mac-phisto: I don't recall ever seeing a credit card company claim that it's not profitable. It's up to them to decide at what point do they cut people off rather than cut into their profits.

@consumerfan: *slaps self* That'll teach me for not reading a previous article (that wasn't linked from this article).

Sorry!

@tard: but for those people who do pay them back, that option is gone.

Instead they go down to the pawnshop or payday loan place and get a 800% effective 'loan'.

We need to take out the payday loan places first.

@Urgleglurk: The little rounded arrow allows you to respond directly (not being sarcastic).

One thing that is definately a right is that I don't have to use a credit card at all if I so choose.

@pecan 3.14159265: I think you're misunderstanding risk. There's no certainty, but there's some risk. For you, for example, what happens if there's a sudden health emergency that depletes your savings? With a job, you may be able to pay back the credit card company; without, you might not be able to.

In any case, credit card companies don't really find out when you lose your job, unless you tell them. Instead, they look at your payment history and so on.

The fact is, if you need to borrow you have to pay what the market will bear. Learn to be smart, pay your cards in full at the end of the month and don't worry about the rate. What ever happened to "living within one's means"?

Banks are doing anything to avoid actual regulation by the govt. So is the health care industry. With both the standard tactic is to try to get the govt. to let them self regulate. But self regulation simply does not work. It is like asking a crack addict to promise to stop using crack and leaving it at that.

I hope the govt. doesn't fall for the "we promise to be good" diversion.

Look at this from the point-of-view of a credit card company:

We have a set of customers. Under our current policies, over the next 5 years, around 25% of them will become bad risks and will have their rates increased by 20%, but we can't predict who those will be.

If we are prevented from raising rates later, we will have to raise rates now. Since we don't know who will become a bad risk later, we'll just increase everybody's rates by 5% now.

So, let me get this straight. Your argument is that if this passes, you'll be forced to do exactly what you've already been doing? And what part of this is challenging anyway? Let's see, removing universal default, removing late fee traps, banning double cycle billing, limiting arbitrary fees, etc. It doesn't make things more challenging, it makes things more simple! Is it that "challenging" to operate in manner where the layman can understand everything you do?

@Darrone: I agree. I don't think that the bulk of credit customers should have to be penalized with the shenanigans that were the impetus for this legislation in the first place to subsidize the losses credit companies will take on customers who should not have credit extended to them in the first place.

The problem comes when the whining from credit companies is based on "we'll still make money, but not enough for everyone on the board to buy that fourth boat".

I think the truth is somewhere in between those. The fact remains, though, that they are manipulating their systems to do things that any thinking, objective person would agree are not fair or reasonable. It's sad that the entire industry has colluded to the point where you can't just leave a shady company to find a trustworthy one because they are all shady, but once that happens, the only thing that will undo it is legislation.

They have created this situation by pushing it to the point where only legislation will fix it. Whining about it now is just childish.

Everyone here is forgetting that in order to build credit, people have very few options. I moved to the United States from Canada in 2007, and my credit score did not carry over. Without the credit card I have right now, I wouldn't have any credit record whatsoever. It can be very hard to get credit without any credit cards, as it's almost impossible to get accepted for loans, especially at this time. Removing credit cards, you might as well remove all capacity for many people to ever get a decent car, or a mortgage, and the credit and banking system will, in essence, kill itself.

@HiPwr: i'm not sure i understand your argument. no provision in the bill takes that right away from credit card companies - it just refines the marketplace.

perhaps you can point me to the provision that would somehow compromise the bank's choice to cut people off. i think i missed that one.

How are they in a "difficult lending environment" if the gov't - I mean, id WE just ponied up our future tax payments to keep them in business? They're in the lending business, they need to lend but do it RESPONSIBLY and without GREED in the form of crazy interest schemes and/or ridiculous fee structures.

@HiPwr: ahh, the infamous free marketeer answer to anything that might force companies to play by a fair set of rules.

that's not how the free market is designed to work. "play by our rules or don't play at all" isn't a valid choice - it's a hobson's choice.

credit card banks have had plenty of years to self-regulate with little result. no more!