# Recent credit card legislation



## GoldenSpike (May 21, 2009)

*http://news.yahoo.com/s/ap/20090521/ap_on_go_co/us_congress_credit_cards*

Excerpt:

But there will be losers too. Banks, which oppose the legislation, will need to make up the cost somewhere, and cardholders who pay off their balance in full each month could see *new annual fees* and *lucrative rewards programs canceled*. Credit could become harder to come by too.


----------



## sechs (May 21, 2009)

I wouldn't expect any immediate change, as the card is issued under agreement with AGR. Whenever their contract comes up, that may change. If the card is attracting a profitable group of people, then there may be little, if any, eventual difference under the new legislative regime.

Considering that this card is hard, if not impossible, to find directly on Chase's website, I'd say that they're not pushing it too hard.


----------



## ALC Rail Writer (May 21, 2009)

Emphasis on "could" in all of the above.


----------



## PRR 60 (May 21, 2009)

I think a likely outcome will be for credit card issuance to get tightened. The banks may be less likely to issue cards to marginal risks. They will likely look of the best customers with the highest credit ratings. Perks like miles and points are a selling point, so I don't see those going away. One area of risk may be the no-annual fee status of the AGR card. I don't see that surviving in the new world of credit card reform.


----------



## sechs (May 22, 2009)

Issuance of credit has already been tightened. I am sure that there are those with the AGR card that had their limits trimmed.

Folks should be careful not to confuse "good customer" with "good credit risk." The banks make their money on interest, fees, and transaction charges on the merchants; a good customer generates lots of these. If you use the card relatively lightly and pay it off every month, you're probably a good credit risk, but a bad customer.

My suspicion is that if there is a fee for the AGR card, many fewer people will carry it.


----------



## gswager (May 22, 2009)

On a plus side, there is noticable less junk mail of credit card applications!


----------



## ALC Rail Writer (May 22, 2009)

I have had an account with capitol One for a year now-- I have always paid back by balance to zero and never was late with any payment. Never had any interest on my purchases.

A year to the day-- and I just got a letter in the mail saying my APR just went up to 24.4%.. nearly 8%!

This is what I get for being a _"good"_ debtor?

The banks are trying to get fear going-- they've payed it fast loose and wild for decades now and they're finally getting hit with federal stipulation (with many in the public calling for even more)... thus, things like this happen.


----------



## PaulM (May 22, 2009)

GoldenSpike said:


> ... and cardholders who pay off their balance in full each month could see *new annual fees* and *lucrative rewards programs canceled*.


Not everyone is falling for the bankers' fear mongering.

 Just one example


----------



## birdy (May 22, 2009)

Unfortunately the wimps in Congress decided not to pass a usury rate. 15% just isn't enough.


----------



## ALC Rail Writer (May 22, 2009)

birdy said:


> Unfortunately the wimps in Congress decided not to pass a usury rate. 15% just isn't enough.


The NRA slipped in some bit about using guns in national parks into the same legislation...


----------



## GoldenSpike (May 22, 2009)

PaulM said:


> GoldenSpike said:
> 
> 
> > ... and cardholders who pay off their balance in full each month could see *new annual fees* and *lucrative rewards programs canceled*.
> ...


Lose-Lose for the banks on both ends if they scare off the consumer. A woman warned the banks in a letter to the editor of the Portland 'Oregonian': *Don't bite the hand that feeds you!*


----------



## sechs (May 23, 2009)

ALC_Rail_Writer said:


> I have had an account with capitol One for a year now-- I have always paid back by balance to zero and never was late with any payment. Never had any interest on my purchases.
> A year to the day-- and I just got a letter in the mail saying my APR just went up to 24.4%.. nearly 8%!
> 
> This is what I get for being a "good" debtor?


You might want to review my previous post in reference to what you've said here.

First, you're not a debtor. You don't carry a debt; you pay off your card every month.

Second, depending on how you use this card, you may not even be a good customer, because you don't generate a lot of profit for CapitalOne.

In any case, what does it matter to you that they've raised your interest rate? You never pay them interest. They could run it up to 200%, and it wouldn't change how much you pay.

Okkay, so, even if it *does* matter to you, you're not locked into CapitalOne. Just get a new card with a rate you like. Maybe if you call up they'll lower your rate back to keep your business -- because getting some money in the way of transaction fees on your purchases is better than getting nothing.

Or, maybe they'll cancel your card. It doesn't matter, because you're one of those people who doesn't use a credit card for the credit.


----------



## the_traveler (May 23, 2009)

I agree. I usually charge $1K-$2K a month (for "luxuries" like gas and food) between my 4 cards, and pay the bill in full. Recently, I bought a big screen TV and have a balance on 1 card, so I don't use that one until I pay it off (soon). That is one of the very few times I paid interest. So I don't care if the interest rate is 2%, 12%, 42% or 142%. Most months, the interest rate I pay is *-0-%*!


----------



## ALC Rail Writer (May 24, 2009)

sechs said:


> ALC_Rail_Writer said:
> 
> 
> > I have had an account with capitol One for a year now-- I have always paid back by balance to zero and never was late with any payment. Never had any interest on my purchases.
> ...


See that is the weird logic these companies use:

They give a line of credit to somebody hoping that they pay it back. The APR is a glorified penalty fee for not paying back on time-- since I do always pay my card back on time then I am a safe bet to give more credit to.

I understand (and have understood) why I might not be a profitable customer-- but why am I getting punished for being what is, in all strictest interpretations of the words a "good" customer.

Incidentally-- you're muddling "good" and "profitable". I am a "good" customer but not a "profitable" one.

And I agree with the_traveler, however I just think that one month I may have an emergency expense and need to carry a balance on the card for a bit until I can pay it off, at which point I am stuck with this enormous APR.


----------



## sechs (May 25, 2009)

Seriously, there's no muddling. You're not being punished for being good. Credit card issuers don't consider folks who pay their bill each month to be "good customers." They call you "deadbeats."

I'll reiterate because it's counter-intuitive: The banks make their money on interest, fees, and transaction charges on the merchants; a good customer generates lots of these.

If you're keeping your nose and clean, and pay your card off every month, you only generate transaction charges. From the bank's point of view, that's bad.

So, at best, you can only claim to being punished for being bad. But it's not really a punishment, because there's no real adverse affect based on how you use the card.

If you're afraid of emergency expenses, keep an emergency fund. Cash will always be there for you; credit can disappear.


----------



## jackal (May 25, 2009)

(Edited to add: I had this thread open in a tab before sechs posted his last post, so I didn't see his until after clicking "submit.")

Don't forget, too, that people who pay off their balances every month (or even every few days, like I used to) and don't pay interest still do generate at least a small amount of revenue for the card-issuing banks in the form of merchant processing fees.

On the other hand, such fees are not really enough to pay for the generous rewards programs on many cards, as evidenced by the fact that American Express usually charges merchants a higher processing fee to use their cards on top of charging relatively high annual fees for their charge card holders (who don't pay interest except in extreme case)--the base-level Green Card has an annual fee of $95. (Many of American Express's _credit_ card products have lower or no annual fees because they are able to recoup their costs on interest charges.)


----------



## PRR 60 (May 25, 2009)

sechs said:


> Seriously, there's no muddling. You're not being punished for being good. Credit card issuers don't consider folks who pay their bill each month to be "good customers." They call you "deadbeats."


Depending on how much a person charges, a bank can make a pretty good sum off customers who do not carry a balance. I estimate that my credit card usage generates at least $1500 a year in transaction fees. Given that most transactions are all electronic, that is pretty decent revenue for doing next to nothing. Add to that the infamous international transaction fees that add 3% to all non-USA purchases, and my annual contribution to the banks' bottom line probably approaches $2000.

Obviously Chase must not think I'm a "dead beat". They continue to pitch the AGR card to me with a 16,000 point bonus for signing up and making a purchase. Chase just so happens to be the holder of one of my three current cards, so they know the score.


----------



## Joel N. Weber II (May 25, 2009)

GoldenSpike said:


> Banks, which oppose the legislation, will need to make up the cost somewhere,


If a business is currently highly profitable, and in a different regulatory environment would be only moderately profitable, that does not necessarily mean that the business would have to raise their rates if the regulatory environment changes. It's possible that their shareholders will simply have to suffer from not making as much money.


----------



## Shanghai (May 25, 2009)

Joel,

How much credit card stock do you own?


----------



## ALC Rail Writer (May 25, 2009)

PRR 60 said:


> sechs said:
> 
> 
> > Seriously, there's no muddling. You're not being punished for being good. Credit card issuers don't consider folks who pay their bill each month to be "good customers." They call you "deadbeats."
> ...


In the last year I made over $7,000 in charges. I paid every penny back, paid a minimal annual fee, and paid one over-limit fee. Those fees are minimal compared to the money a person can generate in transaction fees. Now this may not be as much as somebody who lives on APR for the rest of their lives, but still I am no dead beat. You don't need to re-iterate yourself sechs, I understand the counter-intuition. There are good, bad, and profitable customers. My credit score goes up, my opportunities may grow, what I am upset about is that I am punished for being a low-risk bet.


----------



## PaulM (May 25, 2009)

sechs said:


> If you're keeping your nose and clean, and pay your card off every month, you only generate transaction charges. From the bank's point of view, that's bad.


Sounds like more bank whining. An article says transaction charges are "about 2% to 3% of what you spend". Let's take the 2%; and assume you, like a bad customer pay it off within the 21 days the new law gives you. That's 2% for 21 days,

2% * 365 days per year / 21 days = 34.8% (less transaction costs of course)

Where else can a bank get this kind of return with, by definition, very low risk?


----------



## PaulM (May 25, 2009)

ALC_Rail_Writer said:


> ... what I am upset about is that I am punished for being a low-risk bet.


You have identified yourself as one of those good risk/bad customer types. So I think it would be more accurate to say that during the debate in Congress, the banks threatened to punish you if the law passed. Many of the posts here are suggesting that the banks won't be stupid enough to try to punish you - the good risk customer. But I wouldn't be surprised it they did try to recoup something by going after the bad risks.


----------



## sechs (May 26, 2009)

For those of you who keep quoting transactions fees: only a fraction of that couple percent goes to the card issuer.

A chunk goes to the merchant's bank or processor. A good amount goes to the network (Visa, for example). What's left goes to the card issuer, from which it must use that money to run its operations.

A couple thousand a year from one account is peanuts for most of these banks. And it's certainly not guaranteed money; nobody makes you use their card to do anything.


----------



## chuljin (May 26, 2009)

I noticed this post, which describes his take on the issue in detail, recently on one of my favorite blogs.


----------



## dart330 (May 27, 2009)

Just got a notice in the mail from Chase this afternoon.



> We are sending you this notice to let you know that we will be making some changes to your credit card account in response to market conditions and to maintain profitability on your account.


This includes:

- increasing the APR to 9.99% + prime

- increasing the APR for cash advances to 15.99% + prime

- applies to current and future balances

I have yet to pay any interest on this card and all this does is ensure I will always pay it off since they are jacking up the rates.

Did anyone else get this notice?


----------



## JayPea (May 27, 2009)

I got that same notice. I always pay it off, too, so it doesn't concern me.


----------

