Credit Card Industry Aims to Profit From Sterling Payers

The feeding frenzy is beginning as a recession causes the U.S. Government, for the first time in years to protect Main Street American interests from the unending greed of creditors and Corporate America. It is because finally the Congress and the current administration are actually trying to help consumers. Now they have decided if I cannot have one, then I will take the other.


In their desperation the Credit Card Industry is turning on their once favored child; the cardholders who paid their bills on time. In addition, the Banks are blaming the favored child and others for the problems they helped cause in the first place. I did not use to be this way, as reported by Andrew Martin, in the New York Times:


“Banks used to give credit cards only to the best consumers and charge them a flat interest rate of about 20 percent and an annual fee. But with the relaxing of usury laws in some states, and the ready availability of credit scores in the late 1980s, banks began offering cards with a variety of different interest rates and fees, tying the pricing to the credit risk of the cardholder.

That helped push interest rates down for many consumers, but they soared for riskier cardholders, who became a significant source of revenue for the industry. The recent economic downturn challenged that formula, and banks started dumping the riskiest customers and lowering their credit limits in earnest as the recession accelerated. Now, consumers who pay their bills off every month are issuing a rising chorus of complaints about shortened grace periods, new hidden fees and higher interest rates.”


No one told you to rely on a business model built on the greedy practices of “ high penalties” “annual fees” and “interest rate hikes” ---you gave people to had dodgy credit and bet on them failing. I mean the industry cannot even feign ignorance, because of the readily available credit reports (DO NOT GET ME STARTED ON THOSE).

Now you are going to punish the good child, who did what you asked and beat them mercilessly with annual fees and penalties, while tell them it’s their fault you had to beat them…..I know that is a harsh criticism but it is a true one. Ok, here is a better one, its loan sharking in a sense; because you are hoping, the person will fail so you can get even more money and chain the person to you forever by paying outrageous interest.


However, this is only the beginning of what I foresee as a huge challenge for the Obama administration. Credit Company’s are culling the herd of risky cardholders they are raising the interests rates, and the Senate handed them a huge victory by not capping interest rates, so banks can continue to lift them, albeit at a slower pace and with greater disclosure.


Hmm, I think I will call that one a draw. Banks are already capitalizing on the opening though as they are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups” …


In my book, such actions will only shrink revenue from existing cardholders, so the argument that that increased regulation will cause Banks to issue few credit cards at a greater cost to current cardholders is bunk. Do not believe the BS, this is a $20 billion industry so I doubt it will just go away. Money is green and they will find a way to get it. The cards will flow.

What gets me is that credit card companies appear to be showing the flawed rationality of career felons or carjackers , in my view, and on that note I will end with the following statement in the New York Times,


Austan Goolsbee, an economic adviser to President Obama said that while the credit card industry had the right to make a reasonable profit as long as its contracts were in plain language and rule-breakers were held accountable, its current practices were akin to “a series of carjackings.”

“The card industry is giving the argument that if you didn’t want to be carjacked, why weren’t you locking your doors or taking a different road?” Mr. Goolsbee said.