FrAAmer

From today's New York Times News Service comes a disturbing article:

Credit cards target those who pay off balances in full

The article states that because Congress is moving to limit penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the credit card industry, banks are expected to look at reviving annual fees, curtailing cash back and reward programs and charging interest immediately on a purchase instead of allowing a week-long grace period.

"It will be a different business," said Edward Yingling, the chief executive of the American Bankers Association. "Those that manage their credit well will in some degree subsidize those that have credit problems."

runninaway

This is just posturing by the banks in an effort to rally support in defeating the current proposals in congress. Charging interst from the date of purchase would be insane, as anyone who manages their money responsibly would simply retire any card that implemented such a change. The banks would be walking away from billions in merchant fees.

biggestbopper

Although discussion of changes in bonus programs is met with much horror on FT--and rightfully so, since we have been cleaning up like bandits. (Remember when we had to PAY for first class tickets!)

But, unfortunately for us, change is coming very rapidly. The banks are going to have to cut way back on bonuses because interchange and merchant fees are going to go way way down. And, that's where the money for the bonuses comes from.

It never made much sense for the poorer card users who carry most of balances but get few of bonuses to subsidize big miles bonuses to the mostly higher income card users. And, it will end here. The Aussies cut the interchange WAY back with pretty much these results.

Sad, but true.

clacko

my wife's hairdresser reported last week that her cc charge was raised from 4 to 6%....

iahphx

Well, we'll see. Obviously, the way many of us have been able to churn credit cards for thousands of dollars of free benefits each year makes no economic sense.

The party will end sometime. Not sure if that "sometime" will be now, however.

MarqFlyer

I think the weakness in this argument is the presumption that the rewards have always been "free." The reality is that we typically "pay" for the rewards in two ways: (1) with our (usually very small) annual fees; and (2) by choosing to use our CCs (as opposed to cash or other forms of payment) with merchants, who in turn pay billions of dollars in merchant fees to the issuers. I understand that the former is pretty inconsequential, but the latter is a huge source of very secure revenue for CC issuers.

Like it or not, consumers have huge economic power, and could put CC companies out of business overnight if we decide that they don't offer us a good deal. For those of us who are able to pay our balances off monthly, it would be pretty easy to switch from CCs to cash if they immediately charge interest and/or eliminate rewards. If that were to happen, CC issuers would be left in a position of having to manage the default risk of having only card holders who carry balances.

In essence, they would trading in some very secure revenue (the huge merchant fees) for some less secure revenue (interest payments from card holders who can't afford to pay off thier bills monthly). While the total dollar amount might be larger in the latter scenario, one has to wonder if it is justified by the increased risk.

I think that's called cutting off one's nose to spite one's face....

Beckles

I don't think the impact of these changes will be as dramatic as the speculation that is rampant in the media today. The credit card industry is still very competitve and there's still plenty of money to be made, even if maybe it is a bit less than it used to be.

Centurion

AGREE!!!! ALL OF YOU ARE SUCKERS INCLUDING THE NEWS PAPER WHO REPORTED. The banks are trying to scare the people who vote into putting presure on congress. DO NOT FALL FOR ANOTHER SCAM by the credit card comapnies.

icurhere2

I see a more likely outcome as minimizing charge-off risk by increasing the number of customers who require a secured card / annual fee - for those who charge and continue (will continue) to reliably pay every month, the potential loss of interchange fees wouldn't be worth upsetting the apple cart. This type of customer is the reason I received yet another mailer yesterday for 40,000 miles to open a card and make a single charge - it's in my "to be considered" stack.

Like any other business, the credit card companies will figure out ways to make money from various types of customers, even if that means going back to the previous model (which many of them shouldn't have left).

pinniped

At the end of the day, this legislation won't have a major impact on they way frequent travelers with good credit obtain and use credit cards.

We are obviously a very profitable segment: why else would the card companies offer us hundreds of dollars in benefits simply to accept their credit cards? It's because most of us go on to use the cards a lot, generating merchant fees. The few of us who churn heavily to game the system might get nipped in the bud a little bit, but given how much custom software development it would take to isolate points/miles churners (without nipping out the profitable customers simply attracted to points and miles) I can't imagine all banks being able to do this.

It's still insanely competitive. The upfront bonuses are going up, not down. I just bought bagels with my new US Airways card: that'll reactivate 57,000 miles I'd stupidly allowed to expire, plus put another 25,000 on top of that. I just bought 82,000 miles and a bag of bagels for $84. They're willing to sell me those miles on the chance that I might continue to use their card.

I don't think the sky is falling quite yet. The new law might remove a few of the most unethical practices from the industry, but it isn't going to radically change the industry.

N965VJ

They should take the last 3 statements and shop around for another merchant provider. That’s nearly double what they should be paying.

pinniped

That's kind of what I was thinking... I thought most small businesses paid around 3% to handle a typical MC/Visa purchase.

Steve M

What makes you think interchange and merchant fees are going to go way down?

greggwiggins

The bill in question passed the Senate today by a vote of 90 to 5.

soitgoes

She has either a really bad deal or a lot of chargebacks. Visa/MC swiped retail should be under 2%.

Change is inevitable--I see churning becoming even more of a thing of the past. I see signup bonuses becoming, on average, somewhat less lucrative. I see ongoing monthly spending bonuses as staying pretty constant.

Change? Yes. Doom and gloom? No.