I thought this was a troubling comment from the feed:

Credit card companies really have to revisit their profit model and have fair rates. This might mean the return of reasonable annual fees in some cases, and we might have to accept that.

This would be an example of an unacceptable outcome. I would much rather nail foolish/irresponsible consumers through universal default and revolving interest than charge people simply for the right to carry cash alternatives.

I long for the day where cash is long-forgotten. The idea of physical, paper money in an information-driven world seems archaic and inefficient to me. Fee-based card products have no appeal to me whatsoever. I suppose I can use a debit card, but the layer of abstraction from credit to debit was always quite welcome.

@ADismalScience: Slave labor would be nice, too.

@ADismalScience:

I agree! This is like saying "Well, everybody carries a balance (or they should), so lets make it cheaper to do so!"

Typical of the new government- punish those who live within their means and reward those who don't.

I have had credit cards for over 7 years, and can only think of two months that I paid interest, and it was 100% planned and treated as a cost of capital. So they say punish me (responsible person) so that somebody who can never pay off their cards (spendthrift) can catch a break. Here's an idea... don't spend money you don't have, or be prepared to pay for the convenience of doing so!

@kwsventures:

Shhhh... the messiah might hear you!

@legwork:

There is a difference between slavery and self-imprisonment, no? I agree that the current credit system largely funds positive outcomes for smart consumers at the expense of stupid consumers. I guess we differ when it comes to the moral rectitude of such a business model, because frankly I prefer it to paying a fee so high-risk borrowers can have cards too.

@legwork:

Its kind of tough to call it slave labor when its optional, just as paying interest is optional when using credit cards.

@kwsventures: "The dictator, Obama..."

Seriously? The man is elected fairly and democratically and he's a dictator? That is excellent logic.

@ADismalScience: It's similar to the aircraft industry. Is it better to rely on a model where fees are straightforward and easy to compare across product lines, or is it better to have an illusionary quoted price with 30 different add-ons and gotchas to snare the unwary?
I know that with airline tix, I'd prefer an honest quoted price and not having to spend half an hour per airline site reading fine print. It also facilitates internet comparisons, which give host to an entire mini-industry.
Opaque pricing strategies benefit only deceptive companies and people with way too much time on their hands treasure-hunting to save $3 here, $5 there.
Also, it makes better sense from a policy perspective to have transparent terms, since the average consumer will likely make suboptimal decisions.
I'd rather see consumer's money go to those providing innovation and superior products, not to middlemen launching Byzantine schemes to extort vig. This is the kind of innovation that will drive our economy, not financial shenanigans.

To say nothing of the fact that, since most people irrationally carry a balance, there's a healthy business in returning to rates and schemes traditionally used. It's hardly the case that we're going to be impoverishing poor, picked-upon banks.

@squinko: The only people who say that are the people who would have rather had Bush's puppet and a retarded Alaskan running our country.

@kwsventures: Do you have to make a new tinfoil hat every morning, or do you recycle them for a week?

@ADismalScience:
"I long for the day where cash is long-forgotten. The idea of physical, paper money in an information-driven world seems archaic and inefficient to me."

+1. That is what I'm always telling people they question my disdain for cash carrying. There is so much unnecessary hassle involved. I don't have to stop in at a bank or find an atm. I don't have to count out pennies or have a cashier do any counting with a line behind me. I don't have to lug around a wad of bills opening myself to the possibility or losing or having my money stolen with little to no recourse. I don't have to stretch out my wallet with all those darn coins! Check balancing is done for me with my transaction history and I just check in on it; no receipt hoarding or having to write everything out as it happens.

Let's just be done with it already.

@squinko: I find it so fascinating that this keeps coming up here. We just got out of an administration that took any questioning of policies as an affront against America, yet Obama is a dictator?

@Trai_Dep:

I guess we differ on the assumption of "opacity." From my perspective credit terms are fairly clearly stated, but then I'm in poor position to comment on the average consumer. If consumers are truly making sub-optimal decisions, fine; change the language IF they will begin making optimal ones. Change the rules if honest people are legitimately being abused.

But my suspicion is and has been that these people know what they're getting into and find ways to absolve themselves of responsibility after the fact by claiming that these billing practices "abuse" their lack of understanding. Every consumer - even the really, really stupid ones - knows that rolling a balance over is going to cost them interest money. Every last one of them! The calculation mechanisms responsible for determining how much simply aren't relevant to the average balance-carrying customer's decision (in my view). Assuming that is in fact the case, how is universal default "abusive?" How is double-cycle billing "abusive?" Because it makes it harder to determine how the APR - which SURELY these aggrieved individuals can quote verbatim! - will grow the balance owed?

Spare me, quite frankly. These consumers just want to pay less for making decisions they KNOW to be irresponsible. All this reform is just deck-chair management, and shifting some of the revenue generation to more responsible consumers. Welcome to paying fees where once there were none so Johnny Accrual doesn't get double-cycled. Because believe you me, the profit margins are going to hold constant.

@kwsventures: Name calling aside - what's a "fair rate?" And who decides it?

These are for-profit businesses from which consumers make a conscious decision to borrow money, and there are plenty of options to choose from in this regard. Hiking a rate on an existing balance is one thing, but the credit card company should be able to charge whatever rate they want going into the contract. If a consumer can get a better rate elsewhere, they'll do so. The government does not need to enter into the conversation.

@TomCoughlin: I agree to a point, but there should be a line drawn when it comes to taking advantage of "bad consumers". 15% cap seems low to me, considering CDs were paying this 20 years ago. I think it'd make more sense to tie it to Treasury rates, or some prevailing interest rate. Maybe 15% above LIBOR or something

@ADismalScience: In the typical case, which i'm familiar with after my stint in the collections department of a major credit card company, individuals in default cannot quote their APR because their APR has changed. If you were to ask the average consumer what their default rates where on the day they defaulted I'd be willing to put down money that less than 10% of them would know what their rates would rise to.

Universal default could easily be considered abusive in every case where a consumer defaults on payments for a reason other than the inability or unwillingness to pay. If an honest person moves and forgets to update their mailing address, a fairly common occurrence, they might miss several bills in a row. In the typical case a credit card company is only going to call someone after they have missed 2 payments or more, in some cases it may take even longer because they simply don't have the man power to call everyone that's behind. The concept of universal default is predicated on the assumption that missing payments on one balance represents an increased lending risk from the consumer but that assumption is not true in the above case as the consumer's risk has not changed at all.

I'm all for charging the crap out of consumers that know what they're getting themselves into or have nothing to blame but their own irresponsibility but I also feel there's such a thing as an honest mistake. I've dealt with more than enough of my fair share of individuals who both had the ability to pay and knew what not paying was costing them and still wanted to play games and give us the run around, Johnny Accrual if you will. Every so often, though, there would be individuals who had simply made a small mistake and had every intention of paying off everything and did so almost immediatly but were charged out the ass for it because the universal default system treats them as if they want to hold a balance for the rest of their lives.

@craptastico: Yeah, it could work tied to an existing rate - I guess my bigger problem is with the government treating consumers like we're idiots (which granted, many people are, particularly about credit) but the answer isn't to punish the credit card companies, the answer should be to educate consumers.

@TomCoughlin: More important than not punishing the credit card companies is to not punish smart consumers that were doing fine without government aid. There is no such thing as a 'reasonable annual fee' for a consumer that's been using credit responsibly all by themselves before government came along and forced the credit market into a business model that includes a fee.

@craptastico: That line will end up being that they simply do not get to have a credit card.

Think about that - if banks no longer give a credit card to everyone with a pulse, what will happen to the rental car industry?

Crdt crd cmpns rlly hv t rvst thr prft mdl nd hv fr rts. Ths mght mn th rtrn f rsnbl nnl fs n sm css, nd w mght hv t ccpt tht.

Th dcttr, bm, knws xctly wht ths rts shld b?

@tetracycloide:

The APR changes, yup. But accepting that, how many of them know it in the first place? Who's sitting there in Best Buy with a financial calculator figuring out how much interest they're going to pay on that stereotypical-yet-informative-debate-wise TV? As a home theatre zombie in my youth, I can tell you - fuckin' nobody.

I am 100% with you on those cases and believe that the system should accomodate those who, in fairness, get screwed over by some procedural issue like a move or a lost bill. But once we start getting into 90 days, collections, and repeated calls it's fairly obvious that an actuarial risk exists that someone has to pay for. THAT is where a fair and just law lies, in setting reasonable standards for practices like penalty rates, rate adjustments, and default practices. THIS law substantially reconfigures the revenue structure of credit card companies by introducing lots of protection because nailing deadbeats is "unfair."

@ADismalScience: come on. you & i both know this isn't isolated to a few "irresponsible" people that can't pay their bills. it's because bank fees have bled into the mainstream that this is so popular, not because people want to protect a handful of "deadbeats".

if that revenue generation hadn't switched to the majority of credit card users in the first place, we wouldn't be here today, but as you say, the profits must hold! & so, Johnny & Suzy Perfect Credit open their bill one day to find they've been targeted by one (or more) of these traps.

this is becoming the norm in banking - make your customer sticky & then screw them to the wall. trick them into fees & then wag your finger at them for not knowing the rules or reading the legalese.

@Trai_Dep: recycling is for commie pinkos.

@ADismalScience: I would personally be happy with a law that changed the universal default system to include a opposing 'universal undefault' mechanism. If putting one balance into arrears can automatically default all balances then I think it would be more than fair if getting every balance out of arrears automatically restored the original terms. There should probably be some kind of timelimit involved since it would make little sense actuarially to simply pretend years of defaulted payments simply dissapeared as soon as all the balances were brought into good standing.

I would have to agree that a fair and just law would lie somewhere between current practice and the proposed law. The politics by popular opinion delivered by a democratic system is unfortunately such that in almost all cases reasonable reactions are forgone in preference of a perpetually swinging pendulum oscillating between over and under reacting to everything.

@mac-phisto: i can tell you from first hand experience that the vast majority of people perpetually in 30-90 day arrears on credit cards are there because they don't want to pay their bills, not becaues they can't.

the people that cannot pay, the ones that simply do not have the money to pay their payments, quickly fall through 90 days into 120+ days and are set up with some kind of settlement or apply for bankruptcy. the vast majority of the people getting hit with late fees every month are paying late fees because they are too lazy to sit down and work out a plan that will get them up to date. i know this because i called these people every month and every month it was the same story, 'i want to make one payment and just one payment. no i do not have time to work out a payment plan. this is my checking information, take the payment and leave me alone.' this was certainly not true of everyone, as i've already noted, but conservative estimates would put it at more than 50%.

@tetracycloide: yeah, but you're speaking from a collections standpoint. i'm speaking from a standpoint where even those people who pay on time - hell, even people who never/rarely carry a balance - are being caught up in this web of trickiness.

yes, some people play the games (& pay the fees). i don't believe this bill is designed to help those people a whole lot (other than provide them with the exact cost of their antics). what i believe this bill means to stop is taking advantage of people who slip up but are otherwise stellar customers with excellent credit.

here's a scenario i ran into just the other day: a couple charged a renovation project on their credit card at 6%. right now the balance is ~$10,000. & they pay enough each month to have it zeroed in a little over 2 years. well, they just received one of those "dear john" letters from their credit card company: "it's not you; it's me. you've been a great customer, but i've been piss-poor in my judgment. you're interest rate is now 19%."

they have excellent credit, have never been late, but because the bank needs to pad that profit margin, they're stuck in a position where it's going to take longer to pay off the debt & it's going to cost more (about 3x more), or they can close the card, take a credit hit & keep the 6% only so long as they never, ever, ever screw up with a payment even once.

either way, they get screwed.

is that how you treat an excellent customer that's been with you for 20+ years, never missed a payment, never over the limit, occasionally charged big purchases that get paid (with interest) over time? yeah, my mom didn't think so either.

anyway, sorry so long.

@Kyle: "Retarded Alaskan"?? Really, you ignorant fool. Do you realize how insensetive that word is to people with DS??

Grow up.

@craptastico: The "Line" that will be drawn is that the "Bad Customers" do not get a card.

Not that this is a bad thiong just a problem for folks to establish credit. This without a credit history will need to build credit either ridicually high rates or secured credit. both will be painful

Newsflash: Credit cards aren't required for building credit!

Zurrr.. how is it that people still bother responding to kws? It's painfully obvious that s/he just trolls the waters making ridiculous statements, then going *poof!*

(and is this the same "Kws Ventures" of panhandle-area Florida...?)

@mac-phisto: Excellent counter-point.
And the important thing to note is that in economic terms, your couple is more productive than a CC company extracting rent under these dubious means.
We need to get away from the excesses where the financial services sector accounted for 30% of our economy's profit. Or, rather, "profit".
They're not productive, in a larger sense, doing these sorts of predatory tricks and stifle activity that IS more productive.

@mac-phisto: "or they can close the card, take a credit hit & keep the 6% only so long as they never, ever, ever screw up with a payment even once."

this. it's not a credit hit to close an account and you'll have to forgive me if i think always being on time with payments to maintain a very low rate for an unsecured loan is reasonable. if they don't want to do business with the bank anymore then that's up to them. now if they miss a payment due to clerical errors then i'm right with you, that's what the law should change.

@Trai_Dep: how could you possible go from 'the couple is productive' to 'CC company is not productive' in so few lines without noticing the disconnect? without that CC the couple isn't buying anything at all and that's what credit is for, funding an investment and waiting for a return.

@tetracycloide: they never missed a payment, though. that's what is unreasonable. they upheld their part of the bargain - they always paid on time. they stayed within their credit limit. they didn't overburden themselves with debt. the "economic climate" determined that her interest rate was going up - not their payment history with the bank.

perhaps you think that's ok. i don't. i think the bank should have to honor its side of the agreement so long as someone doesn't enter default. they shouldn't be able to treat their customers like couch cushions & reach in to extract some spare change whenever they feel so inclined.

that's why i support this bill - i think it provides reasonable measures that outlaw the cheap tricks & sets standards that most other lending divisions already have to follow. perhaps i missed something - do you see anything incredibly unreasonable about these provisions?

@tetracycloide: Credit is vital. Finance is vital.
The recent "innovations" that look likely to be curbed aren't, and they're diverting capital that could be put to better uses.
Sort of like being for a modern financial system, while being opposed to third-party CDOs, if that makes more sense.

@Trai_Dep: Err, CDSs, 'natch.

"they are politically unpopular as they are seen as interfering with a free market economy."

You know what else interferes with the free market economy?

The government. Like in the beginning of this decade when Greenspan slashed interest rates and caused the housing bubble.

@MooseOfReason: That wasn't the government; the Fed isn't the government. You really mean to say when Clinton signed the laws encouraging just anyone to purchase a house.

@mac-phisto: when the couple asked for a credit line they didn't have $10k in unsecured debt. that might not be overburdening, i don't know what there income or assets look like, but if i were a bank it would give me pause if one of my borrowers took on that much risk at once. the actuarial equation changed which precepetated a change in the terms of the account which is prefectly natural. the couple could still close the account and pay it off at their original interest rate, what's so unreasonable about that?

the incredibly unreasonable part of the provisions is the annual fees for everyone else. i think it's unreasonable to expect a bank to wait 3 billing cycles for a borrower to accept new terms. that's 3 months of extra time for an unscrupulous individual to rack up more and more debt while the bank is powerless to adjust the terms of the loan. i like the stance on double cycle billing and some aspects of the policy on universal default.

I just know that I'm going to get dicked if this ridiculous 'reform' goes through. We're heading back to the days where every card has an annual fee and credit limits are just enough to buy you a pack of gum.

[www.politico.com]

@tetracycloide: the line wasn't repriced based on her relationship with the bank - it was repriced b/c the bank determined it needed to make more money. that, in my opinion, is the type of trickery that needs to be addressed.

the provision that allows a person to opt-out by closing an account isn't entirely unreasonable, but changes need to be made in CRA reporting to ensure that someone isn't penalized for choosing this method. there are penalties - your utilization takes a hit whenever you close an account, which can cause a score drop (making you look riskier to other lenders, when in fact you're not).

i don't believe "annual fees" are being legislated. i think this is more of a scare tactic by cc cos. than anything else. the marketplace is too diverse to say that these changes will require banks to bring back annual fees. hell, i still have 3 fixed rate cards in my wallet & cc cos. have been trying to kill them off for the last decade. even without these provisions, some cards still carry annual fees. only time will tell, but i think if the big banks swing toward annual fees, you'll see smaller ops. trying to capture market share by refusing to implement them.

@ADismalScience: I long for the day where cash is long-forgotten.

Speak for yourself. I still like to be able to make anonymous transactions, thank you.