Financial Oversight: Kneejerk or NeccessaryFollow

I understand that it is a part of our (American at least) political culture to have a large reaction to an event and pass laws or regulations against or moderating behavior. For example, post-911 airport security checking shoes after the shoe bomb guy, or limiting liquids after the fear of "liquid-mix" bombs. (these are not laws, but knee-jerk reactions I suppose) I read this short blurb today about the government overwhelmingly supporting the regulation of credit card companies and their fees/rates/policies and the quote from Senator Kerry was pretty interesting:



I'm know people cared about this issue before the economic downturn, and I'm sure people with bad credit get totally screwed by credit card companies on a daily basis, but are these kneejerk reactions to the economy, or are they neccessary for future financial health?

In this particular example, I mean, if you couldn't afford the interest and risks with borrowing money, shouldn't you not have credit cards? Obviously this may be a bit of a stretch since what applied last year doesn't apply this year, but this is a permanent law in reaction to a temporary problem. Without their fees and offering varying interest rates based on credit, how can the credit companies secure themselves and make money?

I'm not making an argument for or against, specifically, I guess I'm mostly wondering what people think. Here's the little blurb:

http://news.yahoo.com/s/ap/us_congress_credit_cards

and for good measure here is an entertaining video that I think sums up the whole thing:

http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff

Edited, May 19th 2009 6:12pm by BoondockSaint

Dunno. On one hand, it makes sense to reward good behavior with lower rates and all that. On the other hand, it seems counterproductive to take someone who has been paying their card on time each month and jack up their interest rates by 5-10% because their credit score slipped in other areas. I mean, if you're worried that someone might not pay you back, how is worsening their situation helping that problem? It seems like a receipe for them to declare bankruptcy or something rather than a means of securing the money you're owed.

At best, it sounds misguided. At worse, it sounds like a baldfaced money-grab where they're using an excuse to squeeze more money out of the consumer, consequences be damned.

I got in trouble with credit cards a long time ago, and had to enter consumer credit counseling. After 5 years of monthly payments with negotiated 0% interest rates, I paid off $13,000 worth of debt (mostly school related) and have been credit card debt free ever since. I now share a card with my fiance, and we pay it off ever month.

Consumers aren't educated, and you can't force people to learn how to protect themselves. For the same reason that people still get computer viruses that were easily preventable, people will always do stupid things regarding their credit.

I don't think that the government should protect people from themselves. I don't think the government can do that. However, I do think that blatantly criminal activity on the part of the credit card companies, such as using a late payment to another vendor as a flimsy excuse to raise an interest rate to obscene amounts or drop a credit limit so that someone is suddenly over the limit should be regulated.

Well, I'm not sure that is correct. Just look at the quote again by senator Kerry:



struggling families: is it really overreaching to assume that he is talking about the economy?

therefore: they should not be hit with unfair credit fees

I don't own a credit card. I'm all about debit cards. I've got one for business expenses and another for personal, each with different banks.

After watching friends get in serious credit card debt back in college I made the decision to go without. I have been fortunate not to have any major medical expenses that might require one.

That said this plan is simply getting the responsible credit risks to pay for the bad ones.

The actual concern with the credit cards goes beyond jacking up interest rates based on a change in someone's credit rating.

I know of at least one of mine -- an extremely large bank -- that informed me it was raising the normal fixed rate from 7.99% to 13.49%. No reason connected to me ... they needed the money. This is different from a variable rate, based, for example, on some defined amount above the prime rate.

When your credit card company makes a change to the credit terms, the card holder has to be informed in advance and has an opportunity to decline the change in terms (the notice tells you how to decline). The card company can either keep you under the previous terms or close the account and let you pay off any balance under the previous terms. And if you later use the card, that constitutes agreement with the new terms.

Fortunately for me, I was in a position to tell them no thanks, close the account -- I have better rates and lots of available credit on other cards. These jokers have lost my business for good. But many people simply can't risk not having available credit right now and won't be able to do better with another bank's credit card. So overall it makes sense for the bank's bottom line but is pretty ****** when it's a change to the specific terms you signed up for, with no change in the cost of credit to the bank, no evidence of increased risk of default, etc.

It's a fairly obvious by-product of capitalism. You know, capitalism? Advertising? Marketing? Overselling consumer products? The foundation of American society?

Yeah, that.

I spelled repercussions wrong.

Anyhoot, I guess I would point to the market to correct this problem. If people weren't so desperate to have stuff and didn't feel so entitled to things, they wouldn't be so fast to jump on with these terrible companies. The companies, in turn, would have to provide better services like, for example, not jacking up the rates because people would leave, like Akhuraj.

Not surprisingly you missed the point.

I'm of the opinion that the credit card companies need some regulation. No matter what your state laws may say, if a credit card company is based in another state, they are only limited by that state's laws (or something like that.. **** Delaware!).

The bank my wife and I use, got bought by another bank during the recent financial chaos. We each had a credit card from that bank, both of which were switched over to the new bank, new cards issued, etc. Before we got the new cards, I sent out payments to the old bank for each card. The old card accounts had already been transferred to the new bank, so there were delays, and as a result both payments were late. The new bank then jacked our interest rates up from less than 10% to 23.99%. I called, argued, explained that it was their own fault since my payment had been received by the old bank on time, but was late when it was sent to the new bank (mind you both banks are now owned by the new bank). They refused to budge at all. Despite being good customers and faithfully paying on time for the last 6 years, they decided to cut us no slack.

The balances were not large, so we paid them both off and closed the accounts, and are currently shopping for a new bank.

It seems like a receipe for them to declare bankruptcy or something rather than a means of securing the money you're owed.

That's why you write the bankruptcy laws.

People make terrible financial decisions when they perfectly understand what they're doing, regulating the intentional obfuscation of contract terms isn't a big deal. Credit card banks were greedy, overreached, and now are suffering an over-correction. That's how the game goes. They still own lots of politicians, including the VP, so this will be a very temporary situation they'll use an excuse to shore up less profitable areas of their business model. Expect to see fees tied to non use of cards, more annual fees, etc. Then when the political climate calms down, they'll retain that added revenue and return to maximizing profit from higher risk clients.

This is why Jonwin and I are carefully following the dates, on which each step of our bank is changing ownership. We pay most of our bills online and the new bank make sure to send us complete instructions on how to go about making the change and not having payments get lost in the shuffle.

The bill passed the Senate 90-5 (and one of the five was a Democrat). Is this going to be one of those times where you cry that the poor widdle GOP was bullied by the ever-so-mean Democrats into voting en masse for something they just knew in their heart-of-hearts was wrong?