Credit Card Wars II: The Bankers Strike Back
February 17, 2010
Any credit card user can tell you -- there's a lot that's wrong with this industry. The credit card game often seems to be rigged in the issuers' interests, and designed to suck consumers' wallets dry.
Here at Slickdeals, we've done our best to re-rig the game in consumers' favor. We work together to find the best deal on airline miles, grab extra cash when Chase is feeling generous -- even rob the U.S. Treasury -- legally! But at best, these are half-measures. What we really need, say consumers, is a comprehensive effort to rein in industry worst-practices.
To the hill! Charge!
Fortunately, up on Capitol Hill, your elected representatives have been busy trying to do just this. Upset over industry practices -- late payment fees and over-the-limit charges that dwarf the size of a customer's actual bills, balance transfer rules designed to trick gullible consumers into paying more than they expect, rate hikes on one card triggered by late payment on another (the so-called "universal default"), and a host of other sins -- Congress passed the Credit Accountability Responsibility and Disclosure Act (or "CARD" Act for short) last year. And give 'em some credit for good intentions, at least.
The CARD Act will go a long way towards eliminating some of the industry's least-loved practices. For example:
• "Universal default?" It's history.
• Likewise the imposition of over-the-limit and overdraft "protection" fees without your consent to the "service."
• Also off limits is the trick of offering a low rate for balance transfers, a higher rate for new charges -- then applying all your payments to the low rate debt first (so that the bank can ding you for higher rate debt as long as possible.)
• Fixed-rate cards must now maintain that fixed rate for at least one year after issuance.
• And while after that, a bank is free to raise rates on new debt, it must give you 45 days' prior notice, and the right to opt-out of the new rate (by closing your account.)
• Even then, debt incurred under the old rate can be paid off at the old rate -- no more retroactive rate hikes.
The CARD Act will also curtail credit card predation upon the young -- for better or for worse. From now on, if you're under 21, and not self-supporting, you'll need to have a parent or guardian co-sign when you apply for a card. Gone, too, are the days of companies handing out free gifts on college campuses when the kids apply for credit.
Love 'em or hate 'em (okay, just hate 'em), banks are businesses. They don't extend credit out of the goodness of their hearts, folks. They're in this business for profit -- and in fact, they're duty-bound to their shareholders to maximize that profit any way they can. Overdraft and over-the-limit fees, and similar charges amounted to $60 billion in revenue for the banking and credit card industries last year, and you can bet your bottom dollar that they won't give up this money without a fight.
Oh, the banks will abide by the new rules of course. It's just … to every rule there is an exception, and every law -- a loophole. If Congress is going to starve the bankers of their over-the-limit fees and late payment charges, then the bankers will just have to find new ways to make a buck. Ways like:
• Annual fees. Remember those? When I was growing up, just about any credit card on offer carried an annual fee for its use. $25 for a MasterCard. $50 for an AmEx. These fees are coming back in a big way.
• Inactivity fees. Don't use each of your cards every month? Well, you'd better get to slickdealing, because this is an easy way for the banks to punish you for carrying too many cards.
• Also, wave bye-bye to "free checking." If banks can't make money in sneakier ways, they're going to have to make it the old fashioned way -- by charging for the actual services they provide. Like allowing you to write checks.
• And speaking of checks, does your bank send you an itemized statement every month, describing what you wrote, to whom, and for how much? Well, get ready to take all that activity online. In fact, a switch to online banking statements is probably the easiest sell of all for the banking industry, because they'll be able to paint it as a "let's all go green together, and save the planet" move. (Of course, if you prefer to receive physical proof of payments, they'll be happy to abandon those principles and charge you a couple extra bucks a month.)
The rules, they are a-changin'
Already, slickdealers are feeling the brunt of the changes as the nation's big credit card banks raise rates ahead of the legislation's entry into force (on February 22).
As time goes on, it's only going to get worse. Some banks will switch from fixed-rate credit cards to variable rates (because in a startling omission, the CARD Act) only restricts an issuer's ability to raise rates on fixed-rate cards. Others will attempt to limit their risk of loss by lowering credit limits, which may (as a totally unintentional side-effect, I am sure) make it more likely you go over your limit, and get hit with a fee.
In short, the rules are changing -- not just for our bankers, but for Slickdealers ourselves.
International lawyer by day and Slickdealer by night, Rich Smith is always on the lookout for a good bargain. Helping corporations pillage Third World economies is great for paying the mortgage, but Rich's real loves are writing about stock investing for The Motley Fool, buying cheap stocks for his own portfolio, and strolling the aisles at Slickdeals in search of the ultimate blue-light special. A veteran of Moscow, Kiev, and Washington, D.C., Rich has traded-in city life, and now takes his ease in the fields of rural Indiana.
Thank you to Michelle Meiklejohn for the image above.
Note to readers-
We would like this thread to be a place for you to post changes to your cards as you notice them, and possible suggestions for alternatives. This is NOT the place for discussions regarding the IQ of politicians, the integrity of banks, or anything else.