Curmudgeon's Corner

Credit Card Curbs

Posted by Al Campbell on May 20, 2009

Economy, Political, Quality of Life, U.S.

Likely to ultimately go under the general category of "unintended consequences" is the about-to-be-signed bill that will limit the credit card companies in what they can do and how they can do it.

On the surface, as almost always seems the case, this bill will limit the rates that can be charged, the time frames under which changes can be made, the number of days before the due date that a billing must be sent, and so on.  Who among us other than the deadbeats would object too strenuously to this?

The problem is that this will hit all credit card users, not just those who are deemed to be the "have nots" that politicians believe they must protect.

Credit card companies have costs and they have the need for profits, even though that is a "dirty" word in some circles.  If those credit card companies find that it costs them more to do business with some people than with others, they have typically raised the price of their services to those who cost them more.  Similarly, those who cost them less and/or make them more money, they lower the rates charged.  Again, many of us would have little or no problem with this approach.

But that equilibrium is about to be altered by artificial means called the "political solution".

If the credit card company cannot obtain the interest and fee income it needs to be able to do business with one group, it will have to either stop doing business with that group, or it will have to get more money from the more favored group to offset those costs.  The "have not" group, being favored by politicians in general is more likely to be in the group that gets charged higher fees and higher interest rates.  The government will not permit the credit card companies to simply end their relationships with these people since that would probably cost them votes.

The other "choices" available to the credit card companies are quite simple; they can either raise the rates and fees charged to the other group of customers, or they can get out of the credit card business.

Voilà! Our rates and fees will be increased to offset the loss of income from the other group, thus penalizing us for the "sins" of others.  This is either an intended or an unintended consequence.  I'll leave it to you to decide which you believe it is.  I tend to lean toward seeing it as an intended consequence that will later be referred to as "unintended" simply for purposes of cover.

At the rate our political world is changing, there will be a greater and greater number of "have nots" as the "haves" are drained of their resources to equalize the plight of all.  Of course, the political groups will tend to be dominated by the few remaining "haves".

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The Curmudgeon Blog today is titled "Cars Of The Future"